January 2008
Issue Features
- Trends in the DC Plan Universe
- The Dividend Puzzle
- Developing a Liability Benchmark
- The Winds of Change
Column: Voices
Departments
Department: Global Megatrends
Today, and over the foreseeable future, a series of events — call them global megatrends — will have a profound impact on the world economy. Each issue of Point of View will share insight into these trends and how the institutional investment community is preparing to address them.
The Growth of Global Investing
As the world's economies become increasingly interlinked, institutional investors have adopted a more global perspective. Investors' domestic or "home market" biases are gradually waning and the level of cross-border investment activity has increased. Pension reforms in many countries are increasing the use of funded pensions in both the public and private sectors. As the pool of instituitonal assets continues to expand, particularly with the growth of pension funds in developing countries, investors are looking to new and emerging markets for investment opportunities.
Projected 2008 Economic Growth
World GDP is expected to grow 4.8% this year. Deeper analysis shows that many emerging and developing economies are expected to post stronger economic growth than the developed countries.
Source: Source: International Monetary Fund, World Economic Outlook, October 2007
Countries Enact Pension Reforms
As countries seek to improve retirement coverage for their citizens, the global pool of pension assets is expected to grow dramatically. A few of the developments that are expected to increase demand for both domestic and international investment opportunities include:
Bulgaria: The government’s proposed medium-term fiscal reform program for 2008-2010 would increase social security pensions.
Chile: The lower house of Congress approved a bill that would establish a Basic Solidarity Pension, financed through general revenues; create a pension bonus for each child a woman bears or adopts; and subsidize social security contributions for low-income workers.
Colombia: Upcoming legislation is expected to include provisions for a multifund model for pension administrators.
Mexico: As of March 28, 2008, individual pension contributions are to be automatically invested in one of five “lifestyle” funds that are supposed to match investment horizons with appropriate levels of investment risk.
Singapore: The government announced five retirement reform proposals intended to extend working careers and improve returns on investment with the Central Provident Fund.
Source: Greenwich Associates/Global Custodian study
Cross-Border Portfolio Investment Increases
Institutional investors, including pension funds and insurance companies, are looking beyond their domestic markets for investment opportunities. French institutions, for example, more than doubled their cross-border investment activity between 2001 and 2004.
*As defined by the IMF minus the newly industrialized Asian economies.
** Includes Argentina, Brazil, Chile, China, Colombia, Czech Republic, Ecuador, Hong Kong SAR, Hungary, India, Indonesia, Korea, Malaysia, Mexico, the Philippines, Paraguay, Peru, Poland, the Russian Federation, Singapore, South Africa, Taiwan (China), Thailand, Turkey, Uruguay and Venezuela.
Source: Bank for International Settlements report, Institutional Investors, Global Savings and Asset Allocation, February 2007
Growth of Pension Assets in Emerging Economics
Pension reforms in many developing economies are spurring the growth of funded pensions, both public and private. These growing pools of assets will create further demand for global investment opportunities.
Source: Organisation for Economic Co-operation and Development, Global Pension Statistics
© 2013 Northern Trust Corporation
northerntrust.com
Past performance is not necessarily a guide to the future. Index performance returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index. Index performance is based upon information provided by the index providers. There are risks involved with investing, including possible loss of principal. There is no guarantee that the investment objectives of any fund or strategy will be met. Risk controls and asset allocation models do not promise any level of performance or guarantee against loss of principal.
This material is directed to eligible counterparties and professional clients only and should not be relied upon by retail investors. For Asia Pacific markets, it is directed to institutional investors, expert investors and professional investors only and should not be relied upon by retail investors. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy or product described herein. This information is not intended as investment advice and does not take into account an investor’s individual circumstances. Opinions expressed herein are subject to change at any time without notice. Information has been obtained from sources believed to be reliable, but its accuracy and interpretation are not guaranteed.
Asset management at Northern Trust comprises Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., the investment adviser division of The Northern Trust Company and Northern Trust Company of Connecticut and its subsidiaries to offer investment products and services to personal and institutional markets. Northern Trust Global Investments Japan, K.K. is regulated by the Japan Financial Services Agency. The Northern Trust Company has a branch in China mainly regulated by the China Banking Regulatory Commission, People’s Bank of China and State Administration of Foreign Exchange. The Northern Trust Company of Hong Kong Limited is regulated by the Hong Kong Securities and Futures Commission. In Singapore, Northern Trust Global Investments Limited (NTGIL), Northern Trust Investment, Inc. and Northern Trust Company of Connecticut, Inc. are exempt from the requirement to hold a Financial Adviser’s Licence under the Financial Advisers Act and a Capital Markets Services Licence under the Securities and Futures Act with respect to the provision of financial services. In Australia, NTGIL is exempt from the requirement to hold an Australian Financial Services Licence under the Corporations Act 2001 in respect to the provision of financial services. NTGIL is regulated by the FSA under U.K. laws, which differ from Australian Laws.