05/09/2011
By Matt Ritchie
Assets of the world’s 300 largest pension funds grew by 11% last year to a record high of US $12.5 trillion according to consultancy Towers Watson.
The company has released research, conducted in partnership with US publication Pensions & Investments, showing that over the last five years Europe has the highest growth rate at 11%, compared to 9% in Asia and just 1% in North America.
Meanwhile, the Latin American and African regions had a combined growth rate of 15%, albeit from a lower base than in many other markets.
According to the research, the world's top 300 funds now represent more than 47% of global pension fund assets. Defined benefit (DB) funds accounted for 70% of assets, having grown by 8% in 2010. Defined contribution funds had grown 13%, and reserve funds 21%.
EMEA head of investment at Towers Watson Chris Ford said the world's largest pension funds have become more defensive during the past five years, partly due to ongoing volatility and an unpredictable growth environment. On average, top 20 funds now have equal amounts allocated to equities and bonds, and the rest in alternatives and cash.
“At the same time Asia-Pacific funds, in particular Japan, have maintained much higher allocations to bonds in keeping with prevailing investment beliefs there and which explains their now 50% share of top 20 fund assets,” Ford said.
The research showed the US remained the country with the largest share of pension fund assets, accounting for 34%. Japan was second at 19%, followed by the Netherlands (6%), and the UK and Canada at 5% each.
Ford said recent movements in markets are a reminder that the economic fundamentals are likely to create a challenging investment environment for a number of years to come.
“We believe that only those funds that are well diversified, more dynamic and risk aware will have been able to minimise the damage to their balance sheets. Furthermore only those with the best governance arrangements are likely to maximise their chances of achieving the future returns they need to improve and lock in better solvency positions.”
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