Canadian pension funds have been hitting the news aplenty with their recent growth in size and strength. They have emerged from the 2008/09 economic crisis as some of the largest players on the global stage, second in size only to sovereign wealth funds. In fact, the country’s five leading pension funds manage a combined half a trillion dollars in assets, which puts them into a strong position to obtain vast infrastructure projects.

The country’s pension funds have been purchasing a vast array of investments internationally. These include toll roads in Chile, timberlands in Australia, real estate in Brazil, gas pipelines in the US and even large parts of London’s Heathrow Airport. But there has also been a rise in investments in less conventional areas.

The Canada Pension Plan Investment Board, in a partnership with private equity, more than tripled in less than two years after it invested in internet phone service provider Skype.

There has been a recent trend of Canadian pension funds stepping up their push into the UK through both the hiring of senior private equity figures and direct investments. Within the investment opportunities being considered, infrastructure and real estate remain the two sectors that offer tremendous opportunities, especially in Europe and in emerging markets. The rising power of Canadian pension funds has been noted to challenge even the globe’s largest sovereign wealth fund as they have shown to be savvy dealmakers.

Across the Atlantic, UK pension schemes have been piling into hedge funds at a faster rate than any other asset class, according to the the National Association of Pension Funds (NAPF). Their share climbed to 4.1 percent from the previous 2.6 percent over the past year and total sums administered by all final salary members came to a total £800bn. This meant in monetary terms that pension fund investments in hedge funds rose by £12bn, to £33bn. According to the NAPF this came at the expense of UK equities which dropped nearly five percent, from 17.1 percent to 12.2 percent.

Emerging markets
But in addition to hedge funds, there were other winners. Large gains were also observed in emerging market equities, which rose from 2.5 percent to 3.6 percent. Others included real estate, which went up from 5.4 percent to 7.2 percent and infrastructure with a minor increase of 0.3 percent.

Meanwhile, the government moved forward the date when the state pension age will change to 66. It is scheduled to happen over a transitional period between 2018 and 2020, six years earlier than was set in previous legislation. Authorities are also planning changes that will see workers automatically included into workplace pension schemes unless they choose to opt out – a process due to commence in October.

Of all the regions Latin America has experienced the biggest pension reform shake up. Its pension funds have seen a significant development in recent times as the area continues steady growth. Mexican pension funds have generated strong returns of an estimated $120bn in assets. A study by Credit Suisse showed that Mexico’s private sector pension funds, or AFORES, the administering funds for retirement, had by the end of last year managed the equivalent of $112bn.

Furthermore, assets under management experienced a sustained average annual growth of 23 percent over the past decade, with a return in annual terms of 13 percent as of October last year. Non-government securities investments by SIEFORES, the society of specialised investment funds for retirement, on the other hand, increased to an estimated 42 percent. The portfolio asset classes included domestic and international debt, structured securities, domestic and international equity and forex positions. In addition, investments in foreign securities were equivalent to 12.5 percent of total assets.

Peru is another South American country that is undergoing significant pension reforms. Ollanta Humala’s freshly-elected government has taken much needed steps to replace its outdated pension model swiftly. With an estimated $30bn in deposits, pension funds are Peru’s most important source of investment capital. The pension overhaul in Peru aims to provide a dependable source of retirement income for workers and disadvantaged citizens. The finance ministry has now set up a working group to help study and devise a plan to expand coverage and increase efficiencies in the nation’s private pension fund system. This group is composed of Congress, several economists, the Central Reserve Bank of Peru and the Superintendent of Banking, Insurance and Pension Funds.

Change has also come in the form of regulatory adjustments. Last year, Peru’s Central Bank increased the limit on pension funds’ overseas investments to 30 percent, while a limit of 50 percent has been set by Congress. This gradual boost is mainly intended to stabilise the currency but will also allow pension funds to buy shares of corporations in Columbia and Chile, once the three complete the integration of their stock markets.

It is widely considered a highly positive industry development because it has provided scope to diversify investment portfolios. In the past Peru experienced a shortage of accessible investment prospects within its domestic market. This regulatory change will provide portfolio flexibility via foreign markets as it will be able to freely invest in an increased number of liquid securities within foreign countries. Peruvian as well as other Latin American pension funds will welcome the flexibility and liquidity of the foreign markets because it will benefit consumers immensely.

View the World Finance Global Pension Funds Awards, 2012, here.