In an interconnected financial world, pension funds are exploring new frontiers to secure long-term retirement stability. Drawing on global data and expert insights, this article examines the evolving strategies that drive cross-border investments.
In 2024, total global pension assets soared to USD 58,511 billion—a nearly 5% jump year-on-year. The United States, Japan, the United Kingdom, and Canada account for over 82% of these holdings, underscoring significant market concentration.
While US plans enjoyed a robust +7.2% growth, Canada saw a moderate +3.0% increase. By contrast, Japan and the UK experienced slight contractions of -1.4% and -2.0%, respectively.
This divergent performance highlights the need for diversified approaches and adaptive risk management in an uncertain macro environment.
Over the past two decades, pension funds have steadily reduced allocations to bonds and equities, pivoting towards alternative investments. In P7 markets (US, Japan, UK, Canada, Germany, France, Netherlands), private equity, real estate, infrastructure, and hedge funds now command an ever-larger share.
For US public pension plans, equity and alternative allocations rose from 74% of assets in 2019 to 77% in 2022. Meanwhile, a reference portfolio of 60% global equities and 40% global bonds delivered a 4.9% return in USD by December 2024, showcasing the ongoing need for balanced exposures.
Pension funds are increasingly looking abroad to mitigate domestic risks, smooth currency volatility, and tap into higher growth opportunities. Countries like the Netherlands and Denmark lead the way with over half of their pension assets invested internationally.
Notably, the Netherlands’ ABP invests 86% of its assets abroad, primarily in the US, while Denmark’s PFA allocates 81% overseas. Emerging markets such as Chile and Peru have also embraced foreign allocations, reaching 44% and 41% respectively.
As pension funds seek resilience and enhanced returns, alternatives have emerged as key portfolio components. These investments offer lower correlations to traditional assets and can improve overall risk-adjusted outcomes.
Regional patterns vary: Nordics focus on direct real estate at home and indirect real estate in the US, Canada boosts its US real estate and infrastructure footprint, and the Netherlands dedicates 17% of assets to alternatives.
Investment restrictions remain a significant consideration. For example, Mexico’s AFORES face ceilings of 30% on equities and 20% on foreign assets, driving 84% of holdings into local bonds.
Conversely, many countries operate under the prudent person investment principle, allowing broader flexibility without strict caps. Governments are also nudging funds toward national priorities such as green energy and infrastructure, reflecting a growing intertwine of policy and portfolio design.
Currently, 58% of international pension plans offer ESG options, aligning retirement savings with sustainability goals.
Prudent risk management remains central as funds spread across borders and asset classes. Many plans employ liability-driven investment strategies to align assets with future obligations, particularly when interest rates fluctuate.
Key risks include illiquidity in private markets, currency mismatches, leverage exposures, and potential herding behavior that can magnify downturns. Pension trustees must also contend with geopolitical tensions, inflation dynamics, and climate-related uncertainties when setting strategic policy.
Leading pension investors offer instructive models. Canada’s CPP Investments maintains a well-rounded portfolio spanning public and private equities, fixed income, credit, real estate, and infrastructure, with annual strategic asset allocation reviews.
The UN Joint Staff Pension Fund blends active and passive strategies while targeting an MSCI ACWI IMI ESG custom benchmark plus 200bps, showcasing the fusion of performance and sustainability targets.
Nordic funds exemplify proactive partner selection in private markets and build in-house expertise abroad, ensuring local insight drives investment decisions.
Global pension systems have demonstrated resilience, earning eight upgrades in the 2025 Mercer CFA Institute Global Pension Index. Standout A-grade systems include the Netherlands, Iceland, Denmark, Singapore, and Israel.
Key themes for the years ahead include continued growth in alternatives, deeper integration of ESG and net-zero commitments, and evolving regulatory scrutiny. Funds will need to balance fiduciary duty with policy objectives, manage liquidity amidst volatile markets, and adapt to shifting geopolitical landscapes.
By embracing international diversification, alternative strategies, and robust risk frameworks, pension funds can enhance retirement security and contribute to sustainable global development.
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