To what extent do pensions invest domestically?
Given the rising tide of economic nationalism, is there anything we can learn from the extent to which pensions around the globe invest in their national economies? Perhaps there is.
Good morning. Our readers will certainly have noticed the rising tide of economic nationalism, which is prompting governments to suggest, with different degrees of forcefulness, that their country’s pensions should invest in their local economy.
We have seen such calls in the UK, Denmark, Finland and Australia, as well as the darling of the global pensions community: Canada.
On top of this there are already plenty of countries with long-standing rules on domestic investment, as we covered in October.
This got us thinking about whether there was a benchmark, as such, of levels of domestic investment and where better to start than the biggest pension funds on the planet.
A note on methodology here: in some instances these “funds” are in fact multiple funds, which a saver can pick from (either target date funds or risk-based funds). In those instances, such as with Federal Thrift Savings Plan, we have averaged the US exposure of all the ready-made funds on offer.
This gives us an average of a little over 18 per cent, which is more than we had anticipated and it appears to be the North American funds that are doing a lot of the heavy lifting - along with Japan’s Government Pension Investment Fund’s chunky allocation to Japanese equities.
We thought we would test this out among smaller pension funds, so we had a look at the biggest sub-$100bn funds from across the globe (some didn’t make the cut because we found disclosure at this level to be a bit worse).
This provided us with an average of 18.9 per cent, which seems far too neat but maybe we can split the difference and 18.5 per cent can be the inaugural AOX domestic investment benchmark.
Once again, the North American funds are the ones that are generally at the top of the range. Perhaps the lesson here is that if even a country like the US which is a bastion of free market, globalised capitalism (well, which has traditionally been one) can invest heavily in their domestic economy then so can everyone else.
But then it’s easy to invest in your domestic economy when your domestic economy is populated by AI companies that have been powering a phenomenal stock market boom.
What does all this mean? Possibly very little. We cross-checked the allocation data with performance data and got this:
You’ll notice the trend line is flat as a pancake which of course means there is no correlation.
It’s almost as if investing large amounts in the US isn’t really comparable to investing large amounts in Japan.
