Almost one quarter of global pension fund assets are now invested in alternative assets, according to a new report by Willis Towers Watson.
The Willis Towers Watson Pension Assets Study, released overnight, found that global institutional pension fund assets in 19 major markets totalled US$35.4 trillion at year end 2015.
Willis Towers Watson global head of investment content Roger Urwin said the major trend has been a shift to defined contribution funds, largely led by the US.
When it comes to investment strategy, the most notable trend has been the increased allocation to alternative assets, said the report.
"Allocations to alternative assets – especially real estate and to a lesser extent hedge funds, private equity and commodities – in the larger markets have grown from 5 per cent to 24 per cent since 1995," said Willis Towers Watson.
"In the past decade most countries have increased their exposure to alternative assets with Canada increasing them the most (from 14 per cent 27 per cent) by the UK (7 per cent to 18 per cent), Switzerland (18 per cent to 29 per cent), US (17 per cent to 27 per cent) and Japan (from 3 per cent to 9 per cent)."
The study also confirmed the increased globalisation in equities, with the 'home bias' in equities falling on average from 65 per cent in 1998 to 43 per cent in 2015.
"During the past 10 years US pension plans have maintained the highest bias to domestic equities (63 per cent in 2015)," said the report.
However, Australian superannuation funds have increased their exposure to domestic bonds by 7 per cent in the past two years, said the report.
"Asset diversification into alternatives and the shift away from domestic equities, have gained momentum among pension funds around the world, as these strategies have helped to manage risk," said Mr Urwin.
"The persistent economic uncertainty is likely to reinforce these shifts. 2016 has started with highly volatile conditions and some material falls in value in January have reflected the uncertainty around global growth overlaid with geo-political challenges.
"The challenges of pension funds worldwide have been severe and onerous for more than a decade with no signs of respite. The success formula remains being tough on risk and being smart on governance," he said.