Pension asset allocation insights 2022
July 22, 2022
Asset allocation is one of the most important decisions an investor makes
A thorough assessment of risks is critical to constructing a portfolio that seeks to meet your objectives, while also being positioned to capitalise on opportunities and mitigate unforeseen risks in a timely manner. To help inform asset allocation it can be useful to review portfolios against the trends of global institutional investors and peers around the world.
Three asset allocation themes for investors to consider
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Changing of the guardUnderstanding the effects of the changing fortunes of economic players and ways of thinking that have held sway for a long time, including the evolving objectives of monetary policies; the prospect of an “Asian century” and the dramatic re-shaping of how finance is provided.
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Position for transitionHow investors should plan for the changes required to put us on a more sustainable path; the role of impact investing; the management of resources to facilitate the green transition; and the power that can be exercised through engagement.
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Modern diversificationHow portfolios should be reinvented to hit target returns while maintaining protection; the use of dynamic asset allocation between strategies and themes; and how to gain access to emergent innovators.
Pension asset allocation trends in Asia, Middle East, Africa and Latin America
In July 2022, we launched a report that provides a comprehensive overview and actionable insights for investment allocation trends across Asia, the Middle East, and Africa (AMEA) and Latin America. We cover US$5.9 trillion in assets under management across fifteen jurisdictions, including a new entrant this year, the Dubai International Financial Centre (DIFC). Mercer specialists in various regions and our partners – El Dorado Investments and Alexforbes – have also shared their insights across twenty markets. More information on the structures of many of these pension systems can be found in the Mercer CFA Institute Global Pension Index Report.
Key asset allocation trends in 2022
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Allocations remain steadyOverall asset allocation has remained steady. However, in some jurisdictions we see increased allocations to equities, with more foreign diversification and alternatives.
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Mounting interest in sustainable investingSustainable investing is demanding the attention of many investors and regulators, with a wide range of initiatives across different markets working towards greater integration of environmental, social and governance factors in investment programmes.
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Investors are responding to inflation and other market pressuresMonetary policies are being reshaped as inflation balloons past central bank targets, and policymakers are grappling with the consequences of bloated balance sheets, the potential economic impact of higher interest rates and disrupted global supply chains.
Five actions investors should consider for asset allocation
Our analysis over many periods shows that a 60/40 equity/fixed income portfolio could have been better positioned to capture opportunities if alternative strategies had been integrated. For this reason, itis a good idea to explore alternative strategies such as private equity, private debt, real estate, and infrastructure to see how they might complement your existing portfolio.
We believe that many investors would benefit from having a larger allocation to China’s onshore market through a dedicated China equity allocation.
When inflation first started to climb following the pandemic, expectations were for a transitory affect. Yet it has proved stickier than many predicted. Now is a good time to assess your portfolio’s sensitivity to inflation and consider any appropriate changes. Read our latest thinking on inflation.
Many institutional investors are establishing sustainable investing beliefs and begin to implement them in their investment programmes. These include the development of total portfolio climate transition plans. Find out more our investing sustainably beliefs and actionable strategies for investors.
While many investors face investment restrictions and other factors leading to a large domestic allocation, there are a number of reasons to consider diversification beyond your domestic market. Our stuck at home paper provides more insights.
Overall allocation observations
49%
fixed income,
compared to 50.6% the prior year
38.5%
equities,
compared to 36.1% the prior year
3.9%
alternatives,
compared to 4.3% the prior year
4.1%
cash,
the same as the prior year
4.6%
other,
compared to 4.9% the prior year
Meet the authors
Simon Coxeter
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Asset allocation insights 2022
This report provides a comprehensive overview and actionable insights for investment allocation trends across Asia, the Middle East, and Africa (AMEA) and Latin America.
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