Pension funds and insurers are struggling to find an easy way to manage their funds amid concerns that their long-term investment returns will continue to lag those of the wider economy.
The biggest pension fund in the world, the Pensions and Investments Authority of Australia, has put off a decision on whether to invest in a pension fund.
“We will wait to hear from the PIOA and see how they approach the issue, whether it will be a new fund, whether they are looking at different investment strategies,” a spokesman said.
Pension funds have long been at the heart of the Australian economy.
But with the global financial crisis gripping economies around the world and the world’s most expensive pension plan, the A$12.5 billion (AU$15.3 billion) Pension Guarantee Fund, being sold for $4.8 billion ($3.8bn) by the Sotheby’s auction house in New York last week, there has been growing concern that the global economy will be left behind.
“If you look at what has happened in Europe, we’ve seen pension funds go under,” Mr Hodge said.
“The pension funds have been forced to do a massive re-investment of their portfolios.”
The Pensions Guarantee fund was designed to protect retirement savings of working Australians from financial turmoil and was created in 1974 to help protect them against future shocks.
Its annual return has been around 8 per cent.
But over the past decade the fund has started to fall.
It lost $5.3bn in 2014, then $2.8b in 2015 and $1.5bn last year.
And with no guarantees from the government that the fund will stay afloat, pension funds are increasingly turning to a private fund, or even pension fund managers themselves, to take on the risk of investing in them.
But some pension fund experts believe that the PIFA will be forced to re-assess its pension plans if it wants to stay afloat.
The PIOAs main shareholder, Commonwealth Bank, last month released a new set of guidelines that state that a pension plan’s returns should be no higher than its total asset value.
That means a pension scheme that invests its assets in a fund that holds assets that are equal to its total assets should have a return of 8 per per cent, compared with 6 per cent for a pension that invests in a bond fund.
But experts say that, in practice, pension schemes are often reluctant to invest directly in a private-equity fund because it could be too expensive for the fund to buy the fund’s shares, as they do in a typical Australian pension scheme.
“They would rather invest in the market and hope for the best,” said David Wilson, an economist at the Institute of Public Affairs.
Mr Wilson said that the situation was likely to get worse as the global economic crisis worsens.
“With the current global recession, pension fund funds are finding it harder to keep their investments in the markets,” he said.
The Pension Guarantees are Australia’s oldest and largest, and the PFIAs biggest shareholder.
It is one of Australia’s most heavily invested pension funds.
It has a long history in the financial industry and has invested in some of the world`s biggest financial companies.
But it has had trouble raising capital in recent years, partly because of a lack of returns for its investment in pension funds, which account for around one-third of its assets.
The pension fund is now looking to a “different” approach, as it looks to attract private capital into its fund, according to a spokesman.
Private funds are generally expected to return a higher rate of returns than public funds because they are expected to hold assets that will outperform the returns of public funds.
That can make it harder for pension funds to raise capital.
“That is something that will come with the coming retirement, and we want to do everything we can to support pension funds as they move towards that time,” the PIA spokesman said in response to a request for comment.
“I would like to think that, with the growth of private capital in the fund, we would be able to support them.”