Denise Voss, Chairman of the Association of the Luxembourg Fund Industry (ALFI) in Luxembourg announced on Wednesday that the Luxembourg's fund industry has been doing well recently with €500bn to a record €3,200 bn assets under management, with the substantial percentage being "new money" flowing in to Luxembourg.

One reason for this is the rise of the "middle class" in various parts of the world, including in China. Another reason is the growth and increased use of pension funds world-wide.

Darios Yazdani of PwC Luxembourg introduced the results of the PwC Pensions Survey commissioned by ALFI. He explained that pension funds are being put under increasing pressure due to longer life expectancy, with governments expecting younger members of society to pay towards the elder members who are no longer earning, and therefore no longer paying into pension funds.

He also mentioned that global pension fund assets have continued to grow. The US has pension fund assets of 24 trillion USD; per capita this relates to 76k, certainly not the highest.

By 2050, the percentage of retirees is expected to be 25.4%, compared to 8% in 1950 and 11.7% in 2010. This is what is termed the "pension bomb".

In Germany the 2020 figure is expected to be 36.1%, with 29.9% in the UK and 32.9% in France.

He stated that he expects that pension fund assets are expected to rise by 6% annually over the coming years to 2020.

Regarding the asset management industry, 33% are represented by pension fund assets, with 33% in insurance. Looking at the asset classes in which pension funds are invested, 36% used to be in bonds and is now dropping to 28%. Alternatives have increased from 21% in 2008 to 26% in 2014.

Globally, pension funds are allocated as follows: 44% in Equity, 28% in bonds, 26% in alternatives and 2% in the money market.

He indicated that there will be further diversification through foreign investments (excl the US), growing from 30% to 35% within just a few years. This is due to diversification and sources of higher return, as well as regulatory rule changes (e.g. in Brazil, Poland, Chile...).

How are the pension funds investing abroad? The large pension funds are setting up their own teams in foreign countries with smaller ones teaming up with asset managers, e.g. the commodities market in Australia.

With investing in foreign funds, this has risen from 24% to 32% between 2008 and 2014.

Denise Voss and Darios Yazdani were speaking at a press conference on Wednesday during the ALFI Global Distribution Conference. Denise Voss added that ALFI will be visiting South America later in the year, with plans to visit Chile, Peru and Colombia specifically regarding pension funds.

Freddy Brausch, ALFI Vice-chairman, stated that we need the right toolbox to ensure the correct investment infrastructure.

Photo by Geoff Thompson (L-R): Freddy Brausch, ALFI Vice-Chairman; Denise Voss, ALSI Chairman; Darios Yazdani, PwC Luxembourg