Tariff-driven market shocks in 2025 push global pension funds to rethink allocations and reduce risks
Pension funds worldwide are intensifying their diversification strategies in response to heightened market volatility and geopolitical uncertainty in 2025, according to Artemis.
The recent introduction of tariffs by the United States administration has led to significant declines in equity markets, prompting pension funds to reassess their asset allocations.
According to the Equable Institute, US state and local pension funds have experienced losses up to US$249bn due to public equity market volatility in 2025.
Notably, US$169bn was lost over four trading days between April 3 and April 8, following the Trump administration’s announcement of global tariffs.
An analysis of the top 25 pension investment funds revealed US$140.7bn in losses through April 11, with US$67bn of those losses occurring after April 2.
The Equable Institute highlighted that as of fiscal year 2024, state and local pension funds held 58 percent of their assets in non-public equities, including fixed income, private capital, real estate, and commodities.
While immediate losses were observed in public equities, the Institute anticipates further declines in private capital and fixed income assets.
Additionally, the FTSE Nareit All Equity REITs Index, a benchmark for US real estate investment trusts, has declined 7.4 percent since April 2.
In Canada, pension funds are also adjusting their investment strategies.
Benefits and Pensions Monitor reported that Canadian real estate is expected to see a modest recovery in 2025, with returns in the mid-single-digit range, as property valuations have already adjusted downwards in 2024.
Infrastructure investments are projected to perform well, benefiting from ongoing infrastructure spending and lower borrowing costs.
Despite their higher yields, mortgage funds are expected to underperform bond funds in a falling interest rate environment, due to their shorter relative durations.
Higher private equity returns are anticipated in 2025 as a consequence of lower interest rates, leading to increased deal activity in buyout-focused private equity funds.
Globally, pension funds are increasing allocations to private markets.
A survey by Schroders revealed that over 94 percent of pension funds have already invested or plan to invest in private markets, with a focus on private debt strategies (51 percent), private equity (49 percent), infrastructure debt (41 percent), and renewable infrastructure (38 percent).
The Thinking Ahead Institute's Global Pension Assets Study indicates that the top 300 pension funds represent 41 percent of total global pension assets, with the top 20 accounting for 17 percent.
These funds are increasingly exploring alternative investments to enhance portfolio resilience.
In the United Kingdom, the National Employment Savings Trust (NEST) plans to significantly increase its investments in private markets, aiming to raise its allocation from 17-18 percent to 33 percent.
The Wall Street Journal reports that NEST recently committed £5bn to IFM Investors, focusing on private equity, private credit, and infrastructure.
According to Reuters, Japanese lawmakers have urged the Government Pension Investment Fund (GPIF) to increase investments in domestic private equity and venture capital to strengthen the country’s private asset investment sector.
