Longevity risk top priority for APAC pension funds
Increasing life expectancy, observed across some of the APAC developed markets, are forcing pension professionals to focus more on improving liability valuations, according to a State Street study.
With three of the APAC economies — Japan, Singapore and Australia — being among the top five countries with the longest average life expectancies, pension funds' confidence in their liability valuations has been seriously challenged.
State Street's study, which surveyed of 400 pension professionals, revealed that one in 20 described their confidence in the accuracy of their asset and liability valuations as less than 50 per cent, and only 12 per cent had confidence levels in the 90 to 100 per cent range.
Also, within the region, Australian pension professionals were the most confident about the accuracy of their asset and liability valuations with an average rating of 79 per cent against the global average of 76 per cent.
State Stree Asia Pacific head of asset owner sector solutions, Beng-Eu Lim, said advances in medical sciences combined with changing lifestyles in the region were increasing life expectancy, making it more difficult for pension funds to assess the extent of their liabilities.
"At the same time asset owners are adopting more sophisticated investment strategies, chasing yield in a low rate environment via more complex and illiquid alternative asset classes. This in turn is making it harder to assess their portfolio's true value," he said.
"Our survey reveals that one in two APAC pension funds plan to increase their exposure to fund hedge funds in the next three years. A similar proportion plans to invest more in real estate over that time."
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