Sat | Jan 23, 2021

Pension funds assets rise to $528b

Published:Wednesday | July 25, 2018 | 12:00 AM

The value of private pension assets rose by a robust $75 billion in the past year, and a top pension expert is attributing the northern trajectory to a combination of economic reforms and investor confidence.

The Financial Services Commission (FSC) reported that pension holdings climbed to $528 billion at December 2017, up from $453 billion the previous year.

Fund assets under management previously broke through the half-trillion milestone last September.

"We are reaping some of the benefits of the economic reform initiative of recent years, which has brought stability to many of the major macroeconomic variables, albeit not GDP growth," said CEO of VM Pension Management Rezworth Burchenson.

"With this stability, we have seen an improvement in confidence, reduction in interest rates, and a robust stock market for the past four years. The growth in pension assets is, in some measure, attributable to the increased valuation of equities within portfolios."

Fund managers oversee some 806 pension plans. Membership in the plans, at 116,000, barely moved in the past year. But a decline in the employed labour force up to December period led to an increase in private pension coverage, which stood at 9.4 per cent.

Pension funds diversify

The FSC itself notes that pension funds have continued to diversify their investment strategies, looking further afield than their historically favourite choice of government securities. Pension funds in general splurged on equities, but also invested more into corporate debt and real estate. The regulator also noted a shift from direct holdings of government securities to investment arrangements or pooled funds and equities, in the main.

For the current period, in which interest rates continue to fall, Burchenson advises that further strategic changes would be advisable.

"With the ongoing reduction in interest rates, which I must highlight is a positive for the local economy, pension funds managers and trustees must relook their asset allocation - considering risk profile, return objectives, demographic profile, economic outlook, inflation expectations and solvency," said Burchenson.

'"This may, in all likelihood, result in greater allocation to equities, real estate and high-quality corporate bonds. Additionally, with the current macroeconomic stability, it is an opportune time to allow pension funds to capitalise of the various investment opportunities regionally and internationally, even on a phased basis," he said.

Pooled investment arrangements topped the list of investment, categories, accounting for 38 per cent or $199.56 billion, of total pension assets. The investment arrangements are a composition of pooled funds and deposit administration contracts, with significant investments in government securities.

The second most popular investment category was government securities, accounting for 26 per cent on $138.32 billion of total pension assets; direct holdings of equity investments accounted for 21 per cent or $110.3 billion; while real estate accounted for four per cent or $21.1 billion.

Direct investments in repurchase agreements, meanwhile, declined significantly by nearly 23 per cent, contributing just over three per cent or $16.8 billion of the pension investment portfolio.