Joe Coughlin, director of the Massachusetts Institute of Technology’s MIT AgeLab, often calls Japan “a nursing home on an island,” whose immigration policy is simply “no,” and now sells more adult diapers than baby diapers.
“We’re not having enough babies, and it’s a worldwide problem,” he notes, before adding that 2047 is the date when more people will be over that age of 60 worldwide than those between the ages of zero and 15.
It presents a perfect marketing opportunity for target date 2045 funds and beyond, especially, it seems, in Asia, where target dates products are set to take off.
“Beset with a graying population and pension funding issues, Asia has seen steady growth in target-date funds (TDFs) over the past few years, even though they remain in their infancy,” Cerulli Associates finds in new research.
The global research and consulting firm says U.S. TDF assets soared after Pension Protection Act was passed in 2006.
Similar developments in Asia—if they occur—could accelerate the growth of TDF assets in the region.
However, it adds, some countries, particularly Korea and China, have already seen some regulatory changes that have spurred or could spur the growth of TDFs.
Country-specific encouragement
TDFs were first launched in Korea in 2011, but were not very popular until 2016, when assets shot up to $57.9 million from $4.1 million in 2015.
Small? Yes, but the growth could be attributed to the Financial Services Commission’s move in 2015 to allow retirement pension schemes to invest up to 70 percent of their assets in high-risk assets, including equities, from 40 percent previously.
The limit was further raised to 80 percent in September 2018. The move gives asset managers the flexibility to allocate more to equities for their TDFs.
Given the challenges in penetrating Korea’s retail market, Cerulli believes it is important for global asset managers to form partnerships with local firms if they intend to offer TDFs.
The Chinese government has launched several initiatives to grow its third-pillar pension space.
In March of last year, the China Securities Regulatory Commission (CSRC) finalized guidelines for pension target securities funds, allowing managers to launch pension target funds as either target-date or target-risk funds of funds.
As of Dec. 28, 2018, the total number of CSRC-approved pension target funds stood at 40.
However, the sales of such funds have been slow due to last year’s market downturn, as well as the lack of awareness of retirement products and investors’ trading mentality.
Besides educating investors on retirement planning, asset managers will need to work closely with local distributors and build good track records to convince investors to invest in such funds.
With about 60 percent of the world’s population and the region’s growing economies, the potential of Asia’s retirement markets is immense.
As in the United States, fund managers have can raise and manage a chunk of these assets by educating retail investors, providing simple but appealing products, expanding distribution, and working with other industry players.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
