Global pension asset allocations and debt markets
The pensions sector is an important investor group in global financial markets and a key holder of government and corporate debt. This paper examines the evolution of pension fund asset allocations around the globe and documents important structural changes. Over time, pension investors have shifted from fixed income securities to mutual fund shares. In the meantime, they have also reallocated from traditional investments into alternative investments. Evidence from US pensions suggests that the decline in the fixed income share is due to both private and public debt. We hypothesise that a global decline in interest rates is one potential driver of this change. Using a global sample, we document that declining local currency government bond yields are associated with lower bond shares in pension portfolios and higher shares of mutual fund and foreign assets. We discuss the potential implications of these trends for borrowing costs.
JEL classification: G11, G15, G23
Keywords: pension funds, debt, interest rates, asset allocation, portfolio investment
