1. Less conservatism in Asian pension funds as they turn toward alternatives.

In addition to moving toward ESG investments, the Asia-Pacific region is also moving toward alternative investments as a means of achieving greater diversification—something becoming ever more necessary to bring in returns as the region's population ages. 

Pension funds in the region have been looking for higher returns in the form of greater asset allocation in illiquid assets such as private equity, real estate, and infrastructure. 

Alternative investment funds are proving to be popular with pension funds, thanks to their stringent reporting and regulatory requirements, as well as fewer regulatory restraints than UCITS.

The pension industry has changed, bringing new challenges, a report from the Association of the Luxembourg Fund Industry and PwC finds.

Consult the following slides that show 7 trends afoot in the pension industry. And see the article below for more about the report's findings. (Photos: Shutterstock)

7. Foreign investment limits.

As pension funds look beyond their own borders in search of higher returns, they have to cope with limits imposed by their own domiciles on how much foreign investment they may engage in. 

There's considerable variation from country to country in this regard, ranging from no limit at all to complex restrictions depending on the type of investment, asset class and/or country of origin of the investment. 

In general, however, the overall trend appears to be to relax such restrictions, something the report expects to continue.

6. Shift from defined benefit to defined contribution.

Says the report, "DC pensions hold more than 50 percent of the seven largest pension markets' total assets, compared to 30 percent back in 1998." 

Despite the fact that DB plans are seen by many as offering more retirement security to workers, DC plans are outpacing DB in part due to the latter's lack of automatic adjustments "needed to keep up with demographic changes." 

This shift drives workers to take a more active role in preparing for retirement, compelling them either to contribute more, work longer or spend less—although many people don't actually have a choice in the matter.

5. Shift from active to passive.

Although the report says active strategies will continue to hold the lion's share of the industry, passive strategies are growing.

This will mean that pension funds will actually need their own active managers "to deal with some of the inefficiencies that may result from a passive-driven market."

4. Alignment with sustainable development goals, environmental and social governance (ESG), and socially responsible investing (SRI).

A new generation of investors looking to have an impact on society, as well as to bring in returns, has led to a 34 percent increase in global sustainable investments in two years. 

At the end of 2018, such assets totaled $30.7 trillion, with institutional investors holding the largest share of SRI investments at 75 percent. 

Climate change and sustainability demands are driving growth, and in the Asia-Pacific region, some can be credited to Japan's Government Pension Investment Fund, which took action to raise its ESG investments to 10 percent—thus "set[ting] an example for other institutional investors and asset managers to adopt ESG integration."

3. Growth potential for UCITS in Latin America.

Pension funds in this region are moving increasingly to international products, according to the report, with almost 14 percent of total assets allocated to cross-border funds or ETFs. 

In particular, Latin American investors are gravitating toward the Undertakings for the Collective Investment in Transferable Securities (UCITS), a regulatory framework of the European Commission, which are attractive investment vehicles due to their expanded options and cost efficiency—as well as for their tax advantages. 

Indeed, 54 percent of respondents to a Greenwich Associates survey of Latin American institutional investors said that those tax advantages were their top reason for investing in UCITS.

2. Proposal of a pan-European personal pension product.

Both the European Commission and the European Insurance and Occupational Pensions Authority, says the report, are advocating for the formation of the pan-European personal pension product, which, it says, "would give EU citizens access to personal retirement plans that can be used to save into a single retirement savings vehicle on a cross-border basis." 

The PEPP would be modelled after UCITS, and is expected to be much in demand, providing asset managers in the pension market with a large boost.

1. Less conservatism in Asian pension funds as they turn toward alternatives.

In addition to moving toward ESG investments, the Asia-Pacific region is also moving toward alternative investments as a means of achieving greater diversification—something becoming ever more necessary to bring in returns as the region's population ages. 

Pension funds in the region have been looking for higher returns in the form of greater asset allocation in illiquid assets such as private equity, real estate, and infrastructure. 

Alternative investment funds are proving to be popular with pension funds, thanks to their stringent reporting and regulatory requirements, as well as fewer regulatory restraints than UCITS.