Australia’s DC funds take on more risk than OECD peers

Pension funds in Australia allocate a higher proportion of assets to shares than pension funds in any other country, according to a survey which looked at the asset allocation of pension funds in selected OECD countries.

According to the OECD’s Pension Markets in Focus report, released in October, Australian funds allocate around 60 per cent to shares, while their US counterparts allocate about 46 per cent, Canadians 31 per cent and those in the Netherlands 37 per cent.

According to the report, strategic asset allocation changes in the past couple of years have been most noticeable in the United Kingdom and the Netherlands, where there is evidence that defined benefit pension funds are reducing their target allocation to listed equities.

It also said there have been some investment developments common to defined benefit and defined contribution pension funds over the past decade that appear to have been maintained and, in some cases intensified, by the financial crisis. They included:

-Increased international diversification of equity portfolios;

-Increased use of derivatives to hedge both asset and liability risks; and

-Continuing exposure to alternative asset classes, including hedge funds, private equity and infrastructure.

Some of the highest exposures to international assets were observed among pension funds in the Netherlands. High exposures to assets denominated in foreign currencies were also found in other countries such as Hungary, Iceland, Japan and Switzerland.

Download the full report here