Global Public Pensions reveals how funds navigated uncertainty of Covid crisis

The second edition of Global Public Pensions, recently launched, provides a unique insight into how one of the world’s most powerful investor groups adapted to the challenges of the Covid-19 crisis. The Official Monetary and Financial Institutions Forum (OMFIF)’s research analyses the portfolio allocations of a curated group of 100 leading global public-sector asset owners. 

At first glance, they appear to have had a pretty good crisis. Total assets of the 100 funds grew by around 10%, to $14.4tn, as equity markets maintained their bullish run and bonds remained apparently immune from a correction. However, more than half of the rise in assets was driven by just four funds, with Japan’s Government Pension Investment Fund alone growing by $360bn. 

GPPs as a whole made limited adjustments to their portfolio composition, with fixed income still the largest constituent. It is by far the largest part of the portfolios for funds in the top quartile of OMFIF’s GPP universe (those with more than $135bn of assets). Equities are the biggest constituent for each quartile in the other 75% of the funds analysed. 

Returns became more dispersed, suggesting that public pension investors may be diversifying within asset classes, and commitments to private equity are growing. While foreign currency assets grew among funds in Asia and Canada, there were declines in foreign holdings in Europe and the US – in the latter case, notably so, with the share of foreign assets among US firms that invest overseas declining from 16.1% to 14.8%. 

‘Global Public Pensions shows how these important funds are evolving their asset allocation approaches during highly unusual economic times,’ said Clive Horwood, managing editor and deputy CEO of OMFIF. ‘It is clear that GPPs benefited from rising if volatile stock markets, and benign bond market conditions, while many moved into private equity or higher-risk asset classes as a response to lower-for-longer. How well that has positioned them for the return of inflation this year and into 2022 will make for interesting analysis in the 2022 iteration of this report.’

Global Public Pensions contains contributions from Germany’s Union Investment, Australia’s AwareSuper, Canada’s CPP Investments and Sweden’s AP4. The chapters look in detail at the asset allocation approach of these 100 funds, the rise of geopolitics as a factor in their risk assessments, and their adoption of ESG-related investment approaches, an area in which many GPPS are seen as global leaders. 

‘Public pension funds’ long-term focus means that in today’s environment, ESG considerations have become critical to how they construct their portfolios,’ said Michael Paulus, APAC head of public sector group at Citi, the lead sponsor of GPP. ‘The largest public pension funds already have sophisticated internal teams addressing sustainability and are often well ahead of the sell side when it comes to understanding ESG issues. The scale of public pension plans – estimated at $25 trillion – means that they have the ability to transform how markets operate over the longer term.’

Global Public Investor was launched on 7 December with a discussion of the key findings of the research involving speakers from OPTrust, USS Investment Management and Citi.

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