Total assets of the world’s largest 300 pension funds grew by over 6 percent in 2013 (compared to around 10 percent in 2012) to reach a new high of almost US$15 trillion (up from US$14 trillion in 2012), according to Pensions & Investments and Towers Watson research. 

The P&I/Towers Watson global 300 research, conducted in conjunction with Pensions & Investments, a leading US investment newspaper, shows that by individual region, Latin American and African funds had the highest five-year combined compound growth rate of over 16 percent (albeit from a low base) compared to Europe (12 percent), North America (around 6 percent) and Asia-Pacific (around 5 percent). The research also shows that the world’s top 300 pension funds now represent around 47 percent of global pension assets[1].

According to the research, defined benefit (DB) funds account for 67 percent of total assets, down from 75 percent five years ago. During 2013, DB assets grew by around 3 percent, compared to reserve funds[2](15 percent), defined contribution (DC) plans (over 9 percent) and hybrids (over 8 percent). Chris Ford, global head of Investment at Towers Watson, said: “Quantitative easing (QE) and easy monetary conditions have provided an unexpected tailwind for equity markets for the last five years or so, which continued strongly in 2013. This clearly helped many funds given their high allocation to equities. Despite ongoing high performance from equities many funds, particularly more mature funds, continue to diversify into other asset classes as they de-risk their portfolios. There is also broad acknowledgement that QE and low interest rates will not last forever and that recent exceptional equity market growth is unlikely to repeat in 2015.”

According to the research, the US remains the country with the largest share of pension fund assets accounting for 36 percent. Japan has the second-largest market share of around 13 percent, largely because of the Government Pension Investment Fund. That fund, which is still at the top of the ranking (a position it has held for the past ten years), has assets of around US$1.2 trillion. The Netherlands has the third-largest market share with 7 percent, while Norway and Canada are fourth and fifth largest respectively with over 6 percent share each.  The research shows that 38 new funds entered the ranking during the past five years and, on a net basis, the countries that contributed the most new funds were Australia (three funds) and South Korea, Russia, Poland, Colombia and Canada (two funds). During the same period, the US had a net loss of 12 funds from the ranking, yet it still accounts for 126 funds in the research. The UK is the next highest with 26 funds, followed by Canada (19), Australia (16), Japan (14) and the Netherlands (13).

Chris Ford said: “The continuing growth of most pension markets is genuinely encouraging; despite the fact that many structural issues remain. During 2013 we dared to believe that a number of positive developments presaged the end of the global financial crisis and as it turned out the global economic recovery has continued to gain momentum into 2014. It is noteworthy that the 13 major pensions markets are now more than double the size they were ten years ago and pension assets now amount to around 78 percent of global GDP, substantially higher than the 61 percent recorded in 2008.”

Sovereign funds continue to feature strongly in the ranking with 27 of them accounting for 28 percent of assets and totalling around US$4.2 trillion. The 113 public sector funds in the research had assets of US$5.8 trillion in 2013 and account for 39 percent of the total. Private sector industry funds (61) and corporate funds (99) account for 14 percent and 19 percent respectively of assets in the research.

Chris Ford said: “Investors have been justifiably preoccupied with managing risk for a number of years but now are increasingly searching for elusive yield. This competition will become fiercer in the face of expected anaemic growth and benign inflationary conditions globally and which will increasingly polarise winners and losers. Most funds are unlikely to get adequate returns from the market in the coming year and will need to work hard in ‘added-value spaces’ to find the couple of extra per cent per annum they need. Investors will need to be well organised to deliver this and it will likely involve a substantial shift in focus away from security selection in equities and towards capturing returns from alternative markets and strategies.”

1 – Estimation based on the P&I / Towers Watson global 300 ranking and Towers Watson Global Pension Asset Study.

2 – Reserve funds are set aside by a National government to guarantee pension payments and are characterised by no explicit liabilities and hence are neither DB nor DC.

3 – As established by national authorities for the meeting of pension liabilities.  We acknowledge that there are many other state-sponsored funds established – we have attempted to restrict this to funds specifically sponsored by national authorities.