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Why More is Merrier in Europe

Multi-asset funds are set to stay at the top of European inflow tables, as the bond rout of the spring and August’s equities plunge serve as reminders of the dangers of being stuck in one asset class, according to the latest issue of The Cerulli Edge – Global Edition.

Cerulli Associates, a global analytics firm, believes there may yet be opportunities for asset managers to launch more multi-asset products, especially in the passive space. It notes that more advisors are recommending this funds, despite previous concerns that asset allocation products were usurping their role. Following the Retail Distribution Review (RDR) in the United Kingdom, many advisors are outsourcing asset allocation and find multi-asset products the best solution.

By highlighting the cost of advisors, the RDR may have also inadvertently boosted MA funds. Cerulli says that more investors, whether pension-oriented or not, are going down the direct-to-consumer route and MA funds offer cheap access to a range of asset classes, often through low-cost platforms.

“Asset management companies should not be reluctant to take risks and differentiate themselves from the crowd. For the best, the rewards can be significant, even with products that are largely fettered funds of funds,” says Brian Gorman, an analyst at Cerulli.

With investors abandoning low-yielding products in favor of better, but safe, returns, flows into multi-asset funds in the first half of 2015 alone, at €123.9 billion (US$137.5 billion), almost matched those for last year as a whole, and were about five times those of the 12 months of 2012. For established asset managers with expertise across asset classes, existing products can easily be leveraged to offer MA funds.

However, there is not universal enthusiasm. Several wealth managers have told Cerulli that they are not recommending MA funds, with some advisors preferring to retain control of the asset allocation process, despite the increased burdens of RDR. Another common complaint concerns the complexity of the product.

“Some investors, and even advisors, say MA funds are hard to understand,” says Barbara Wall, Europe research director at Cerulli. “If advisors do not know what is going on with a fund, it may conflict with the asset allocation they are trying to effect through other products they are recommending for their clients.”

There is some skepticism as to whether the U.K. pensions revolution introduced this year represents a bonanza for fund providers. Acknowledging that considerable scale may be required to realize a significant gain, Cerulli maintains that the downside is minimal, especially for firms that can set-up suitable low-cost products. It believes that the balance of probability is in favor of such funds offering sizeable opportunities for asset managers.

While the RDR driver for MA is not yet as strong in most of Continental Europe as it is in the United Kingdom, some asset managers say change is on its way. One told Cerulli it had already seen a trend of retail banks, aware the days of retrocessions are coming to an end, setting up their own MA products. They are also seeking firms to act for them as subadvisors.

Other Findings:

Increasing headcount is on the agenda in the United States as institutional sales managers at large and small asset managers respond to the changing needs and expectations of clients. Cerulli notes that increasing client-service roles is particularly important. Experts are required, as is greater collaboration between teams, says the global analytics firm.
In charting the fund-buying journey of more than 70,000 individuals in 11 jurisdictions across Asia, Cerulli has observed the importance of trust and the explosive growth of online direct-to-consumer platforms. Regular income/dividend payout is key for investors in the region. Cerulli notes that a clear and well-executed digital strategy is crucial for marketing success.
Regulatory risk is inhibiting asset managers in Europe and the United Kingdom, while potential disruptors are deterred by regulatory requirements and reputational damage, says Cerulli. It warns that asset managers slow to embrace mobile technology risk disruption from alternative distribution channels, where the emphasis is less on buying products–which the industry is comfortable with–and more on engaging and empowering customers.

The Implications of Financial Stress

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Jeremy Lawson, Chief Economist, Standard Life Investments said at the publication of the Global Outlook from Standard Life Investments: “We continue to see a moderate global expansion into 2016, supporting modest corporate earnings growth outside the energy and materials sectors. Our view remains that a widespread or systemic emerging market financial crisis is unlikely, but the pressure on a number of large developing economies will not disappear quickly. Global GDP growth is expected to improve marginally but remain below trend.

“The implications for investors are considerable, as they need to consider throughout their strategic asset allocation process what the repercussions are of low returns on bond, cash and equity prices over the remaining part of this business cycle. Listed equities in particular are sensitive to developments in global activity, as they tend to have larger external exposures than do economies as a whole. Moving up the capital structure towards selected credit may have advantages in this environment.

“At the epicenter of the crisis, in China, a hard landing is not our central scenario as we expect extra fiscal stimulus, but the transition to a new growth model will remain bumpy and unfriendly for commodity producers. More deceleration in growth could lie ahead and the Chinese currency is likely to weaken moderately against the dollar.

“Our forecast assumes no further falls in commodity prices and stabilization in the recent levels of financial stress. If stress builds further then there is a large risk that growth will not rebound, through its effect on consumer and business sentiment, when monetary policy easing in the developed economies will quickly come back on to the agenda.”

Terrapinn´s Wealth Management Americas Brings Together Private Bankers and Family Offices

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For the past 8 years, Terrapinn has run two co-located Wealth Management events in Miami: Private Banking LatAm and Americas Family Office Forum. Since these 2 industries have converged, they have decided to rename the event Wealth Management Americas 2015.

Wealth Management Americas, to be held Nov. 17-18 at the Four Seasons Hotel in Miami, will bring together the most senior executives from US and LatAm Private Banks and Family Offices to discuss today’s latest investment opportunities across all asset classes, as well as the latest trends within family governance, wealth planning, and timely regulation topics around FATCA.

Speakers for this years event include:

Beatriz Sanchez, Managing Director, Goldman Sachs
Blair Hull,Founder, Managing Partner, Ketchum Trading, Chairman, Hull Investments
Harris Fried,CEO, The Fried Family Office
Ernesto de la Fe, Managing Director and Director of Wealth Management for Latin America, Jefferies
Alexei Antoniuk, Director, The Rebel Yell Family Office
Jean-Louis Guisset, Head of Private Banking, Banco INVEX
Diego Pivoz, Head of Wealth Planning, Latin America, HSBC Private Bank
Michael Felman, President, MSF Capital Advisors
Patricio Eskenazi, CIO, Banco Penta
Nicole Taylor, Founder, T Family Office
Carlos Hernandez Artigas, Founding Partner, Forrestal Capital

You can download the brochure here

To register, please visit the event website

Q3 2015 Sees Fewest Private Equity Funds Closed Since Start of 2006

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Global private equity fundraising saw a further slowdown through the third quarter of 2015. One hundred and seventy funds closed, down from 317 in Q2 2015 and 290 in the same period last year. The aggregate capital raised by funds closed in this quarter was $116.9bn, down from $129.3bn in the previous quarter. It was the third consecutive quarterly decline in fundraising, and represents a 29% decrease from the $164.9bn raised in Q4 2014, the most recent fundraising peak. In 2015 YTD, private equity funds have raised an aggregate $385.4bn, down from $388.1bn in the first three quarters of 2014.

“The global private equity fundraising market has continued to stall in the third quarter of 2015. The number of funds closed is the lowest of any quarter Preqin has on record, and aggregate fundraising totals declined for the third consecutive quarter. Despite recent turmoil in Asia, there has been an increase in fundraising for funds focused on the region, and on Rest of World. This, though, does not offset a lack of growth in the mature North American and European markets, as both the number of funds closed and aggregate capital figures continue to fall there.”  Says Christopher Elvin – Head of Private Equity Products, Preqin. 

Private equity funds closed so far in 2015 have taken an average of 16.3 months to reach a final close. This figure has risen slightly from Q2’s 16.2 months, but is still below the average 16.7 months that it took for funds closed in 2014 to fundraise.  

Fundraising totals for venture capital, real estate, and funds of funds all decreased, while infrastructure fundraising rose from $4.4bn in Q2 to $13.1bn in Q3.

The number of private equity funds in market is currently at a record high. 2,348 funds are seeking a combined $831bn in commitments, up from 2,248 funds seeking $781bn at the end of last quarter. Dry powderlevels have not continued the rapid increase seen through H1 2015, and currently the overall figure stands at $1.35tn.

The Number of Dollar Millionaires Worldwide Could Increase by 46% in the Next Five Years

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The size and wealth of the middle class globally grew quickly before the financial crisis, but growth subsided after 2007 and rising inequality has squeezed its share of wealth in every region, according to the sixth annual Global Wealth Report, just released by The Credit Suisse Research Institute, which focuses on how the middle class has developed since the turn of the century.

The report shows that global wealth fell by USD 13 trillion from mid-2014 to mid-2015, due to dollar appreciation. If  measured at constant exchange rates, global wealth would have risen by USD 13 trillion since  last year. According to the company´s estimates global wealth could reach USD 345 trillion by mid-2020, 38% above its mid-2015 level,  and the number of dollar millionaires worldwide could increase by 46% in the next five years, reaching 49.3 million by mid-2020.

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The USA again led the world with a substantial rise in household wealth of USD 4.6 trillion. Meanwhile, China -also posted a large annual rise of USD 1.5 trillion- has the largest middle class with 109 million members, surpassing the USA with 92 million. And Switzerland again ranked highest in average wealth, but fell USD 24,800 to USD 567,100 per  adult.

Wealth per adult fell by 6.2%to USD 52,400 and is now back below the level of 2013, -shows the report-, and a person needs just USD 3,210 (after debts) to be in the wealthiest half of the world.

In its analysis, the company has taken a new approach to defining the middle class category, using a wealth-based definition – versus an income-based one – that allows for adjustments over time to reflect inflation, and also varies across countries depending on local purchasing power.

Michael O’Sullivan, Chief Investment Officer for the UK & EEMEA, Private Banking and Wealth Management at Credit Suisse said, “We are clearly in a growth industry, with wealth set to continue its upward trajectory. By our estimates, wealth could grow at an annual rate of 6.6%, reaching USD 345 trillion in 2020. Furthermore, the number of dollar millionaires could exceed 49.3 million adults in 2020, a rise of more than 46.2%, with China likely to see the largest percentage increase, and Africa as the next performing region. Overall, emerging markets account for 6.5% of millionaires and will see their share rise to 7.4% by the end of the decade. High-income economies will still account for the bulk of new millionaires, with 14.0 million adults entering this category. Millionaire net wealth is likely to rise by 8.4% annually, as more people enter this segment. Emerging markets will likely account for 9.1% of millionaire wealth in 2020, 1% above current levels.”

Credit Suisse Research Institute’s Markus Stierli said: “From 2008 onwards, wealth growth has not allowed middle-class numbers to keep pace with population growth in the developing world. Furthermore, the distribution of wealth gains has shifted in favor of those at higher wealth levels. These two factors have combined to produce a decline in the share of middle-class wealth.”

To view the full report you may use this link

The Fed Will Raise Rates, But There’s No Need to Panic

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Eight years after the Federal Reserve (Fed) last hiked its target short-term rate, and over six years since it last touched it, the time has come for a new hike. Monetary policy shifts have always been impactful to the markets, and given the length and extent of global central banks’ interventions since the 2008 financial crisis, the impending rate hike will follow suit.

While rate hikes have often been a response to an overheating economy, this time around is decidedly different. The Fed is simply exiting emergency measures placed in 2008, in a move toward “normal” in a global economy that is inherently different than it was nearly half a generation ago. The Fed has also pledged rates increases will be measured and gradual, which should not derail the U.S. expansion in the long run.

But the changes to the investment backdrop don’t stop there. Looking beneath the surface reveals structural factors that are reshaping the economic, inflation and investment landscape. Understanding these influences is equally, if not more, important for investors developing long term strategies for the post-rate hike economy.

First among these structural factors? Technology and innovation. Essentially reducing total labor costs while simultaneously enhancing efficiencies, technological innovation has the potential to enable asset-lite business models and even act as a deflationary force. The effect is not always easy to measure, but various sectors are showing notable signs (for example the energy industry). Output is able to increase with limited incremental investment, resulting in what is called productive disinflation. So, while wage increases may be dulling despite the labor market tightness, net disposable income can increase because of the lack of inflation.

A second, equally important factor affecting the market outlook is world demographics. Considering that aging populations generally draw more from the economy than contribute to it, the current demographic shift in developed countries is believed to be contributing to the long-term downshift in economic growth. Beyond the long-term implications on economic growth, older demographics also tend to borrow less and exhibit a preference for fixed income, thus driving demand for longer-term bonds while holding yields down and affecting interest rates.

The prevailing impact of these technological and demographic trends will be felt in lower inflation than in the past and, to the chagrin of central banks’ attempts, will not be easily swayed by monetary policy. All of this indicates that global economies are likely to remain in a slow-growth, low-inflation low-rate cycle for some time beyond the first Fed rate hike.

Some Ideas to Fine Tune Your Portfolio

In this environment, being aware of duration risk is crucial. Given the current factors shaping the fixed income landscape, ultra short and long duration bonds in the US appear less vulnerable than medium-term maturities to a rate rise. Think of other fixed income assets for your income needs, for example Treasury Inflation Protected Securities (TIPS) and High Yield bonds, but don’t overreach for yield.

Foremost, remember the role of bonds in your portfolio. Whether you are looking for income or risk diversification, or are aiming to dilute the effects of interest rate, credit and inflation risk, be mindful of the motivations behind your bond strategy. Now is the opportunity to rethink your bond strategy and prepare your portfolio for performance in the impending new “normal” economy.

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This material is for educational purposes only and does not constitute investment advice nor an offer or solicitation to sell or a solicitation of an offer to buy any shares of any Fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that some or all of the funds have not been registered with the securities regulator in any Latin American and Iberian country and thus might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein.

Fintech-Fuelled Change Offers Unprecedented Opportunities On Global Payments

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Venture capital investment, accelerator programmes and a proactive focus on the deployment of new technologies through allegiances with fintech companies should be priorities for banks as a multiplicity of new payment capabilities come to the fore, according to a new report by BNY Mellon.

The new report, Innovation in Payments: The Future is Fintech, follows on from Global Payments 2020: Transformation and Convergence and hones in on the growing influence of fintech in transaction banking. It assesses the direct and indirect impact of the new technology on payments and the way in which it is moulding client behaviour and fuelling expectations for better, faster and more innovative solutions across the payments spectrum.

Cutting-edge technology holds great potential to transform how consumers and clients initiate and process transactions. It’s no longer just a case of new currencies or faster payment methods, but an entire rethinking of how transfers of any “value” might be undertaken. More fintechs are graduating from the ranks of start-ups to multi-billion dollar listed companies: at least 4,000 fintech start-ups are active and global investment in fintech ventures tripled in 2014 to $12 billion.

“The fintech era is upon us and banks shouldn’t merely be mindful of this; they should also have a clear strategy in place in order to adapt to and benefit from fintech-fuelled changes,” said Ian Stewart, Chief Executive Officer of BNY Mellon’s Treasury Services business. “While the banking industry is traditionally conservative about change, any hesitation or ambivalence here could be costly. In order to position themselves at the centre of the payments industry of tomorrow, banks must act today to understand, interact with, and cherry-pick from the full smorgasbord of fintech developments.”

“BNY Mellon is immersed in the fintech sector,” adds Stewart. “We are focusing on and investing a great deal of time in exploring the opportunities it has to offer the global payments arena in areas such as the potential to reengineer payments, including blockchain and big data technology. We are also working closely with fintech firms to explore the use of new technology capabilities.”

“As a major provider of wholesale banking services to client banks, we’re committed to staying current on evolving conditions in the banking industry, and liaise with our client banks about how the changing landscape is likely to impact their business strategies,” said Anthony Brady, Global Head of Business Strategy & Market Solutions for Treasury Services at BNY Mellon. “Our research into the changing transaction banking ecosystem has important implications for us as a business, and we’re eager to discuss with client banks how our investments in technology are positioning us to be an even better provider of support to them as they align their business plans with the emerging future state of our industry.”

While regulation has put pressure on bank resources, banks must prioritise technology-focused strategies. The financial services industry has one of the highest ratios of IT spend as a proportion of revenue, with levels expected to reach US$197 billion in 2015. That said, over three quarters of this is estimated to be in maintenance rather than new services, so banks need to redress this imbalance. The report examines what strategies banks should adopt in order to understand and access these exciting fintech-fuelled developments, and thereby future-proof their long-held position at the heart of global payments.

To view the report, Innovation in Payments: The Future is Fintech, please click here.

Fewer than Half of Investors Believe the Fed will Raise Rates in 2015

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CC-BY-SA-2.0, FlickrFoto: ncindc. ¿Y después, qué vendría?

Investors are expressing growing skepticism that the U.S. Federal Reserve (Fed) will raise rates this year amid fragility in the global economy and earnings, according to the BofA Merrill Lynch Fund Manager Survey for October.

Fewer than half (47%) of investors believe the Fed will raise rates in 2015, down from 58% in September.
A net 19% of the panel says global fiscal policy is too restrictive.
Cash balances fell to 5.1% of portfolios, down from 5.5% last month, but remain above historic average levels.
A growing majority of investors (net 26%) say that corporate operating margins will decrease in the coming year, up from a net 18%.
Short Emerging Market Equities was named the most crowded trade in October by 23 percent of the panel, up from 20%.
China is seen as the greatest “tail risk” by 39% of the panel, down from 54% in September, while pessimism over Chinese equities eased.

“As investors debate the timing of a rate hike, they should be anticipating a massive policy shift in the U.S., Europe and Japan from QE to fiscal stimulus in 2016,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

Broker-Dealers Need to Rethink Their Strategies In Order To Attract and Retain Top Advisors

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To remain competitive in today’s financial advice industry, broker-dealers must recalibrate their relationships with their advisors, according to a whitepaper released by Pershing. The report, “Why Teams Are the Client of the Future for Broker-Dealers”, points out that changes in the advisor-client of the modern broker-dealer present different challenges and opportunities that broker-dealers must navigate. These changes provide broker-dealers with an opportunity to rethink their overall strategies to attract and retain top clients.

According to the report, the top client of today’s successful broker-dealer is not a “rep” or even an “advisor” but an ensemble, which is a firm or a team of multiple professionals that service and manage client relationships. Ensemble teams are already controlling a significant percentage of broker-dealer revenue, growing faster than the average practice, servicing a higher-net-worth client base and offering better career growth opportunities. Most importantly, ensembles are net acquirers. They are acting as a successor for many of the smaller solo practices and are likely to emerge as the ultimate consolidators of the industry.

“Broker-dealers have formed traditional affiliation models around individuals, which don’t necessarily work as well for ensemble firms,” said Jim Crowley, chief relationship officer and managing director at Pershing. “However, broker-dealers that recognize and understand that their top client is a team rather than an individual will not only strengthen existing relationships with these clients, but will also position themselves for organic growth and strategic acquisitions.”

While ensembles are valuable to broker-dealers, they are also at risk of being lost as clients. Many larger teams are departing broker-dealer firms to become independent. These advisors, known as breakaway advisors, are moving to a registered investment advisor (RIA) or hybrid business model. Industry changes continue to increase the possibility that successful teams will part ways with broker-dealers.

Despite the challenges, broker-dealers can successfully recruit, retain, and work with ensembles by better understanding how they work and by restructuring affiliation models. Pershing’s report highlights actionable ways for broker-dealers to accomplish this, including:

Restructure relationship management: Broker-dealers should maintain a relationship with multiple individuals within the ensemble team, including the CEO/managing partner/leader, COO/operations leader, advisors and next generation of successors.
Focus on holistic financial advice: Since more than 70 percent of a large advisory firm’s revenue comes from advisory fees, broker-dealers should seek to reframe the relationship with the firm as one of offering a spectrum of financial advice and serving in a more custodial capacity to demonstrate the greatest value to the advisory team. This includes understanding the investment philosophy of the ensemble team, knowing the tools advisors need to run their business efficiently, integrating technologies and support, offering holistic planning, and building confidence and trust through open communication.
Understand the ensemble team’s vision and business strategy: To be a good business partner, broker-dealers need to ask advisors about where they envision the future of the ensemble team in five to 10 years. Ideally, the vision should be one where there is collaboration with the broker-dealer at some level. The more the two firms work on the strategy together, the longer and stronger the relationship will be.
Think in terms of outsourcing: One of the most productive avenues for strategic partnership is outsourcing. Activities that advisors can outsource to their broker-dealer include: compliance, technology, due diligence, back-office operations and practice management.
Give ensemble teams examples of success and thought leadership that they can study and replicate: One of the primary reasons advisory firms leave broker-dealers and become RIAs is that they perceive it to be the path followed by large and successful businesses. To be successful, broker-dealers need to create examples of the collective intellectual capital that can be leveraged to demonstrate expertise and show value to investors.
Create and foster a culture: If the broker-dealer and advisory firm share the same values and goals, the relationship will be strong, durable and successful. To continue to foster that culture, broker-dealers need to regularly come together with advisors in a constructive dialogue about their business strategies and expectations of each other.

To obtain a copy of Pershing’s whitepaper Why Teams Are the Client of the Future for Broker-Dealers, please use this link

South America Shows the Highest Growth Rate in Foreign Investments in Pension Funds with a 20% CAGR from 2008 to 2014

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Pension funds around the world are increasingly looking beyond their borders to address their investment needs, according to the Association of the Luxembourg Fund Industry (ALFI) which recently released its global pension fund report, “Beyond their borders: evolution of foreign investment by pension funds,” produced by PwC Luxembourg.

The report – which looks at the growth of pension funds globally, the asset allocation of pension funds on a regional basis and the foreign investment of pension funds – found that South America’s pension funds showed the highest growth rate globally, with assets soaring from US$ 184 billion in 2008 to US$ 528 billion in 2014, a 19.2% compound annual growth rate.

In terms of investing overseas, foreign investment for the pension funds of the majority of OECD countries (excluding the US) accounted for about 25% on average of their total pension investments in 2008, but jumped to almost 31% in 2014.

Denise Voss, chairman of ALFI, comments: “As the baby boomer generation approaches retirement and life expectancy continues to improve, public sector pension liabilities will grow. At the same time the need for greater personal savings for retirement income is growing. This study provides more clarity on the global investments of pension funds, demonstrating the opportunities offered by global investing and how some markets are approaching this, but also highlighting how pension fund regulations differ from one country to the other. In particular it highlights the regulatory constraints on some pension funds in the amount they can allocate to investment funds or in foreign investments and suggests the impact this could have on their growth.”

Dariush Yazdani, partner of PwC Luxembourg Market Research Centre, adds: “The new millennium has changed the playing field for pension funds. There are significantly more people retiring today than there were even a decade ago and this is putting pressure on pension funds’ investment strategies. But even in the midst of new challenges, pension fund managers are facing a future brimming with opportunities. The unique ability of pension funds to focus on long-term investments allows them to absorb short-term volatility while bearing market and liquidity risk through diversification – one of the most effective means of achieving diversification is through foreign exposure.”

Growth of pension funds globally

On a regional basis, North America’s pension funds represented the largest assets at a global level, having reached US$ 27.21 trillion in 2014, up from US$ 15.8 trillion in 2008.

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Asset allocation of pension funds on a regional basis

Taken globally pension funds allocated 44% of their total portfolio to equities, 28% to bonds, 26% to alternatives and 2% to money market products in 2014. Allocation varies considerably from region to region, with North America allocating 48% of total assets to equities, Asia Pacific 40%, Europe 37%, and South America 34%.

The US, Canada, Japan and the Netherlands are the countries that pursued the largest equity investments in 2014, allocating US$ 12 trillion, US$ 986 billion, US$ 662 billion and US$ 582 billion respectively to this asset class.

Japanese pension fundsexperienced the largest increase in the share of equities within their total portfolio, which increased by 21% from 2008 to 2014. In contrast, South Korea’s pension funds showed the largest decline in their equity share, decreasing by 22% from 2008 to 2014.

The alternative asset class has shown a strong increase from 2008 to 2014 with the total amount allocated to alternatives jumping from US$ 4.4 trillion in 2008 to US$ 9.7 trillion in 2014, a 117% increase.

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International investments by pension funds

Foreign investment by the pension funds of the majority of OECD countries(excluding the US) accounted for about 31% of their total pension investments on average, however with regional differences described below.

In North America (excluding the US), pension funds’ overseas investments stood at 16% of the region’s total portfolio in 2008, reaching 21% in 2014.

In Europe, the average percentage of pension fund portfolios allocated to foreign markets increased from 32% in 2008 to 34% in 2014, with the Netherlands, Finland and Portugal investing the highest percentage of their pension fund portfolios overseas in the last six years – in the Netherlands foreign investment reached 76% of the country’s total portfolio in 2014.

Asia Pacific’s pension fundsinvested, on average, 19% of the region’s total portfolio in foreign markets in 2008, and expanded that to 31% in 2014. Hong Kong and Japan are the most aggressive investors in foreign investments within Asia, with Japan’s pension fund allocation to foreign markets rising from 16% in 2008 to 32% in 2014.

In South America, this is the case for Chile and Peru, with Chile allocating 44% of total assets to foreign markets in 2014 and Peru investing 41% for the same period. Brazil, in contrast, invested less than 1% in foreign markets in 2014 due to stringent regulatory barriers which are beginning to soften.

When investing abroad, pension funds favor equity investments but adopt different strategies:

Some pension funds develop asset management teams based abroad. For example in 2011 Norges Bank Investment Management, which manages the Government Pension Fund Global for Norway, established a subsidiary in Luxembourg to oversee direct and indirect real estate investments in Continental Europe. The South Korean National Pension Service opened an office in London in 2012, followed by another in Singapore three years later.

Another strategy includes acquisitions or partnerships with asset managers that have expertise in foreign markets. In 2012 Fidante Partners, which manages the Australian government’s pension funds bought a significant stake in MIR Investment Management, a specialist in Asia-Pacific equities.

Investing in foreign funds is another efficient way to invest abroad. Nearly all mature pension markets tend to use investment funds when investing a large percentage of their assets abroad as they are one of the most effective and convenient vehicles for gaining exposure to international assets, giving liquidity and exposure to a wide variety of global assets that are not always available in a domestic market. For less developed pension markets, a higher usage of investment funds is expected over the coming years. Developing countries are likely to follow the move of the Chilean pension funds, which have been achieving higher diversification through the use of UCITS funds.

Ms Voss concludes: “A key finding of this report is the importance of investment funds in the diversification of the portfolios of pension funds around the world. Investment funds, and UCITS investment funds in particular, provide pension funds with a substantial degree of liquidity, diversification and a very high level of investor protection.”