Australian super funds have the lowest allocation to bonds of any pension funds in the major markets, and among the highest allocations to equities and alternatives, according to the latest Global Pension Asset Study by Towers Watson.

The study shows Australia’s total pension assets coming in at number five in the world – behind the US, UK, Japan and Canada and just ahead of the Netherlands – at US$996 billion at the end of 2009. As a proportion of GDP, Australia ranks equal third with the US with 93 per cent – behind the Netherlands (120 per cent) and Switzerland (113 per cent).

The asset allocation shifts of the last 12 months to a large extent reflect the rebound in equity markets in most countries. However, Australian funds’ asset allocations are noteworthy:

. Australia and Switzerland have by far the highest allocations to cash – both with 8 per cent. Most funds in the other countries have less than 3 per cent cash.

. Domestic equities account for 37 per cent of Australian super funds’ portfolios, which is the second highest after the US (43 per cent) in the major seven countries.

. International equities account for 20 per cent of Australian funds’ allocations, which is third-highest after the UK (32 per cent) and Canada (20 per cent).

. Domestic bonds account for only 9 per cent in Australia – the lowest allocation. This compares with 41 per cent in the Netherlands, 39 per cent in Japan and 28 per cent in Switzerland.

. ‘Other’ assets, which include real estate and alternatives, make up 22 per cent of Australian portfolios, which is the same as in Canada, compared with 29 per cent in Switzerland, 24 per cent in the Netherlands and 20 per cent in the US.

Martin Goss, a senior investment consultant at Towers Watson in Australia, said the gyrations of markets during the past few years presented pension funds with very difficult strategic asset allocation choices.

“During the crisis, some funds sold out of equities to address solvency issues, some drifted out of equities and into bonds by not rebalancing, while others maintained their strategic mix and rebalanced to prior equity percentages,” he said.

“The result overall was a phase of de-risking, although often not in a measured way and this has largely been reversed as equity markets have rebounded and risk allocations rebuilt.”

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