Australian superannuation assets delivered a strong return last year despite global volatility, with Australian pension assets exceeding GDP for the first time.
Domestic pension assets relative to GDP rose from 96 per cent in 2011 to 101 per cent in 2012, making Australia the world’s fourth largest pension pool, with assets totalling US$1.6 trillion, according to Towers Watson research.
“Given the extreme economic and market volatility we have experienced during the past five years, it was a relief for many pension funds to finish the year in better shape, for a change,” Towers Watson senior investment consultant Australia Martin Goss said.
“While volatile markets are expected to continue for the foreseeable future, pension funds are now generally better equipped to deal with them.”
Australia maintains the highest level of allocation to equities globally at 54 per cent but the lowest bond allocation at 15 per cent.
Australia also has the highest proportion of defined contribution (DC) assets relative to defined benefit (DB) assets at 81 per cent.
“The Australian dominance of DC enables trustees to place priority on long-term risk-adjusted returns. In contrast, in countries with a greater bias to DB, matching liabilities is a greater priority, leading to lower equity and higher bond allocations, despite the historically low bond yields currently on offer,” Mr Goss said.
Australian’s exposure to alternative assets has increased over the past decade from 14 per cent to 23 per cent in line with a global shift towards this asset class.
“In terms of specific asset class, we don’t’ think that bonds represent great value at the moment – but for those who think equities present relatively better value, it is challenging to know what to do about it when the goal for many funds is to reduce risk overall,” Mr Goss said.
“So many funds are buying fewer bonds than before, and those that are considering adding risk to their investment portfolios are most often diversifying into alternative assets, rather than simply buying equities.”
