Pension Funds Abroad: Where the Big Money is Moving

Today’s pension funds are no longer confined by domestic borders or traditional asset mixes. Demographics and political pressures are reshaping strategies, pushing trillions of dollars toward global private markets. This evolution demands both deep insight and practical guidance for policy makers, plan sponsors, and individual investors alike.

The Global Pension Landscape

Globally, the pension fund universe commands an astonishing US$58.5 trillion across 22 leading markets. The seven largest markets—the U.S., U.K., Japan, Netherlands, Canada, Australia, and Switzerland—hold the lion’s share of these assets, with the top 300 funds alone controlling a record US$24.4 trillion. Defined benefit (DB) plans remain significant at 59.4% of disclosed assets, yet defined contribution (DC) schemes are growing faster, surging 14.3% in 2024. As DC becomes the engine of growth, individual retirees shoulder more investment risk and asset managers innovate to offer sophisticated pooled vehicles.

Beyond institutional pools, individual retirement accounts amplify cross-border capital flows. In the U.S., IRAs reached US$18 trillion by mid-2025, up 15.4% year-on-year. Together, institutional and retail retirement assets form a powerful investment source seeking yield and diversification outside home markets.

Structural Shifts in Portfolio Allocations

In 2024, large pension funds allocated roughly 45% to equities, 33% to bonds, 20% to private markets and real assets, and 2% to cash. Compared with two decades ago, alternatives and real assets rose to 20% as equities and bonds declined. The low-rate environment and volatility spurred a relentless search for yield, driving allocations toward private equity, infrastructure, private credit, and real estate.

Defined benefit schemes are de-risking through insurance buy-ins and buy-outs and cash-flow driven investment strategies. Meanwhile, DC vehicles retain higher equity exposure over longer horizons via lifecycle structures, fostering steady demand for liquid equity and growing appetite for private markets exposure through low-cost, pooled solutions.

Key Asset Allocation Breakdown

Cross-Border Investment Trends

As home bias wanes, pension funds are increasingly cross-border investors. Funds from Canada, the Netherlands, the U.K., Australia, and the Nordics now hold large portfolios in global private equity, infrastructure, and private credit. A key driver is the need for durable, inflation-linked returns—especially in infrastructure debt and equity aligned with energy transition themes such as renewables, grid modernization, and energy efficiency upgrades.

Private credit leads net inflows as pension plans seek yield, downside protection, and portfolio diversification. These flows often target U.S. and European direct lending markets via co-investments, secondaries, and specialized funds instead of expensive fund-of-funds. Real estate allocations focus on logistics, residential build-to-rent, and data centers, where stabilized rental income and capital appreciation potential meet long-term liabilities.

Drivers and Constraints of Overseas Allocations

• Regulatory Pressures: National priority mandates vs. prudent diversification.
• Currency Hedging Costs: Major constraint for emerging market exposures.
• Funding Gaps: Search for yield incentivizes overseas investments.

Wealthier emerging market funds in Latin America and the Gulf are building offshore portfolios despite hedging challenges. Meanwhile, some markets introduce long-term asset funds to channel domestic DC savings into infrastructure, creating tension between global diversification and productive local investments.

Regional Case Studies

United Kingdom: DB plans enjoy a ~125% funding ratio and are de-risking through buy-ins/buy-outs, while DC assets near £1.9 trillion and aim for 10% private markets by 2030. Policy tensions arise as officials encourage 50% domestic investment to support national growth, even as global diversification remains vital.

Country & System Highlights

• Netherlands: €1.6 trillion in assets; major shift under the Future Pensions Act from DB to DC, with rising hedges and planned reallocation to credit and private assets.
• Australia: Rapid DC growth powering global allocations in infrastructure and real estate, leveraging superannuation pools for direct deals.
• Canada: Maple Eight funds deploy capital in toll roads, airports, renewable energy, and private loans across multiple continents.

Singapore, Iceland, and Denmark earn top A grades in system resilience, balancing adequacy and sustainability while navigating government influence on private investments. Israel also ranks highly for integrity and innovation in pension design, setting a model for emerging economies adapting to demographic shifts.

Practical Insights for Stakeholders

Plan sponsors and policymakers must balance domestic infrastructure objectives with the benefits of global diversification. Implementing pooled long-term funds can channel DC savings into productive national assets without forgoing returns abroad.

Asset managers should expand co-investment platforms and secondaries expertise to meet rising private credit and infrastructure demand. Streamlining operations and reducing fees in DC offerings will also enhance value for individual participants.

For individual investors, understanding your pension’s global allocations and risk profile is key. Engage with plan administrators about alternative exposures, particularly private equity and credit, and monitor currency hedging approaches to protect returns.

Conclusion

Pension funds have evolved into powerful cross-border capital engines, deploying trillions into private markets, infrastructure, and credit worldwide. This shift reflects demographic aging, low yields, and regulatory dynamics. By blending global diversification with prudent domestic mandates, stakeholders can secure sustainable returns, support economic growth, and ensure retirement security in an interconnected financial landscape.