Mon | Jan 21, 2019

Pension funds are loving equities - Funds under management top $500b

Published:Friday | February 2, 2018 | 12:00 AM

Jamaican pension funds are investing more in equities and less in direct holdings of real estate, the Financial Services Commission, FSC, noted in updates on the market this week.

The drift away from government securities also continues, even as pension assets have climbed overall, pushing the private market above half-trillion dollars for the first time.

But the pension regulator also detected renewed interest in repos, in reversal of a sustained southward drift in recent years.

FSC's latest update on the pension sector for the quarter ending September 2017 values pension assets at $513.35 billion. The funds reside in 805 plans, of which only 399 are active.

There were noticeable changes in investment activity in the FSC report.

Equities rose 16 per cent quarter-on-quarter - or nearly three times the six per cent average growth for the entire sector - and accounted for $104.29 billon or a fifth of total pension plan assets.

Within the asset category of 'investment arrangements' - which account for $195 billion or 38 per cent of total pension plan assets - equities made up a third of that portfolio, prompting the FSC to comment that this product type was "now the most important asset class" within investment arrangements. Stocks and shares have overtaken government securities, which once dominated the arrangements, but was estimated at 32 per cent of the portfolio in September, compared to 33 per cent for equities.

Investment arrangements include pooled funds and deposit administration contracts, and are broadly defined as monies from various clients invested together by a pension fund manager, with each client owning a proportionate share of the total investment. They are sometimes referred to as indirect investments.

This portfolio shift within investment arrangements was occasioned by a 20 per cent decline in the value of indirect investment in government securities.

But it would also have been fuelled by new listings on the Jamaica Stock Exchange, and the rise in market capitalisation above $1 trillion within the review quarter.

Despite their contraction, sovereigns still exceeded equities at $133.75 billion to account for 26 per cent of pension plan assets.

Investment in repurchase agreements also "grew significantly by 12 per cent" and now account for four per cent of the total pension investment portfolio, the regulator said.

"The direct and indirect growth in repurchase agreements has reversed a recent decline in investments in this asset class," FSC added.

As for real estate, that asset class has lost some of its lustre and continues to record marginal declines. It now represents less than four per cent of industry assets.