For many of the largest U.S. pension funds, it seems, the world — particularly the developing one — is their oyster.
Among defined benefit funds in the nation's 200 largest retirement plans, assets invested in emerging markets securities jumped 33% to $146 billion for the 12 months ended Sept. 30, according to Pensions & Investments' annual survey.
The boost in emerging markets was powered by equities, which saw a 29.6% gain to $127.9 billion, while debt, though smaller by assets, saw a much larger percentage increase, 62.5%, to $18.2 billion.
Meanwhile, global equity increased 14.6% to $97.3 billion, active global/international bonds rose 6.4% to $71.1 billion and active international equities gained 12.9% to $371.8 billion.
When adjusted for the market, emerging markets equity was up 10.5%; emerging markets debt gained 34.7%; global/international bonds rose 1.3%; global equity dropped 5.8%; and international equity fell 6.2%;. The MSCI All-Country World index was up 21.73% for the 12 months ended Sept. 30; the MSCI Emerging Markets equity index, 17.25%; the MSCI EAFE, 14.86; Barclays Global Aggregate Bond index, 5.07%; and the J.P. Morgan Emerging Markets Bond index, 20.59%.
Among the biggest shifts reported in emerging markets equity were the $88 billion New York State Teachers' Retirement System, Albany, reporting $2.31 billion as of Sept. 30, up from $165 million a year earlier, and the $25 billion defined benefit plan of United Parcel Service Inc., Atlanta, which is reporting $1.3 billion in emerging markets equity, up from $754 million.
In global equity, the bigger shifts included those of the $21 billion Mississippi Public Employees' Retirement System, which reported $1.18 billion, up from $267 million, and UPS, reporting $2.4 billion from $462 million.
In aggregate, defined benefit plans in the top 200 had 2.8% of assets invested in global equity as of Sept. 30, up a tick from 2.6% a year earlier. Corporate plans within that universe had an average 2.3% invested in global equity in the latest survey, up from 1.8%; public plans, had 2.8%, up only 10 basis points; and union plans had 6.3% invested, compared with 5.6% a year earlier. In international equity, the aggregate investment among defined benefit funds was 18.2%, up from 17.4%. Corporate plans were at 14.9%, up from 13.5%; and public plans, at 19.1%, were up from 18.4%. Union plans, however, saw a slight drop, to 10.3% from 10.5%.
“More and more, we're seeing with our clients the global shift in allocations,” said Thomas McAuliffe, managing director and head of global investment consulting for Bank of America Merrill Lynch, New York, which manages $48 billion in pension assets, mostly for corporate and Taft-Hartley plans. “Emerging markets has also been a big play, and no surprise it's more on the equity side.”