Total assets of the world’s largest 300 pension funds grew by over 6% in 2013 (compared to around 10% in 2012) to reach a new high of almost $15 trillion (up from $14 trillion in 2012), according to Pensions & Investments and Towers Watson (NYSE, NASDAQ: TW) research. The P&I/Towers Watson global 300 research, conducted in conjunction with Pensions & Investments, a leading U.S. investment newspaper, shows that by individual region, Latin American and African funds had the highest five-year combined compound growth rate of over 16% (albeit from a low base), compared to Europe (12%), North America (approximately 6%) and Asia Pacific (approximately 5%). The research also shows that the world’s top 300 pension funds now represent roughly 47% of global pension assets.1
According to the research, defined benefit (DB) funds account for 67% of total assets, down from 75% five years ago. During 2013, DB assets grew by approximately 3%, compared to reserve funds2 (15%), defined contribution (DC) plans (over 9%) and hybrids (over 8%).
“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,” said Chris Ford, global head of Investment at Towers Watson. “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 recent exceptional equity market growth is unlikely to repeat in 2015.”
According to the research, the U.S. remains the country with the largest share of pension fund assets, accounting for 36%. Japan has the second-largest market share of roughly 13%, 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 10 years), has assets of approximately $1.2 trillion. The Netherlands has the third-largest market share, with 7%, while Norway and Canada are fourth and fifth largest, respectively, with over 6% share each.
1Estimation based on the P&I/Towers Watson global 300
ranking and Towers Watson Global Pension Asset Study.
2Reserve
funds are set aside by a national government to guarantee pension
payments and are characterized by no explicit liabilities, and hence are
neither DB nor DC.
*Real-asset strategies include a wide range of investment opportunities (e.g., in agriculture, farmland, timberland, water [including water rights] and natural resources). The distinctive characteristic of real assets is tangible underlying assets, and their connection to the food and resource scarcity theme.
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), followed by Canada, Colombia, Poland, Russia and South Korea (two funds each). During the same period, the U.S. had a net loss of 12 funds from the ranking, yet it still accounts for 126 funds in the research. The U.K. is the next highest with 26 funds, followed by Canada (19), Australia (16), Japan (14) and the Netherlands (13).
“The continuing growth of most pension markets is genuinely encouraging, despite the many remaining structural issues. 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 pension markets are now more than double the size they were 10 years ago, and pension assets now amount to around 78% of global GDP, substantially higher than the 61% recorded in 2008,” said Ford.
Sovereign funds1 continue to feature strongly in the ranking, with 27 of them accounting for 28% of assets and totaling around $4.2 trillion. The 113 public sector funds in the research had assets of $5.8 trillion in 2013 and account for 39% of the total. Private sector industry funds (61) and corporate funds (99) account for 14% and 19%, respectively, of assets in the research.
“Investors have been justifiably preoccupied with managing risk for a number of years, but now are increasingly searching for elusive yield. This competition will become fiercer in the face of expected anemic growth and benign global inflationary conditions, and the situation will increasingly polarize winners and losers. Most funds are unlikely to get adequate returns from the market in the coming year and will need to work hard in ‘added-value spaces’ to find the couple of extra percent annually they need. Investors will need to be well organized to deliver this, and it will likely involve a substantial shift in focus away from security selection in equities and toward capturing returns from alternative markets and strategies,” said Ford.
1As established by national authorities for the meeting of pension liabilities — we acknowledge there are many other state-sponsored funds established, and we have attempted to restrict this research to funds specifically sponsored by national authorities.
Top 20 pension funds | ||||||||||
(US$ millions) | ||||||||||
Rank | Fund | Country | Region | 2013 AUM | ||||||
1. | Government Pension Investment | Japan | Asia Pacific | $1,221,501 | ||||||
2. | Government Pension Fund | Norway | Europe | $858,469 | ||||||
3. | ABP | Netherlands | Europe | $415,657 | ||||||
4. | National Pension | South Korea | Asia Pacific | $405,521 | ||||||
5. | Federal Retirement Thrift | U.S. | North America | $375,088 | ||||||
6. | California Public Employees | U.S. | North America | $273,066 | ||||||
7. | Canada Pension | Canada | North America | $206,173 | 1 | |||||
8. | National Social Security | China | Asia Pacific | $205,168 | ||||||
9. | Central Provident Fund | Singapore | Asia Pacific | $200,376 | ||||||
10. | PFZW | Netherlands | Europe | $196,933 | 1 | |||||
11. | Employees Provident Fund | Malaysia | Asia Pacific | $182,216 | ||||||
12. | Local Government Officials | Japan | Asia Pacific | $179,820 | 1 | |||||
13. | California State Teachers | U.S. | North America | $172,424 | ||||||
14. | New York State Common | U.S. | North America | $164,008 | ||||||
15. | Florida State Board | U.S. | North America | $146,266 | ||||||
16. | New York City Retirement | U.S. | North America | $143,925 | ||||||
17. | Ontario Teachers | Canada | North America | $132,445 | ||||||
18. | Texas Teachers | U.S. | North America | $119,706 | ||||||
19. | GEPF | South Africa | Other | $117,681 | 2 | |||||
20. | Pension Fund Association | Japan | Asia Pacific | $117,636 | ||||||
1 | As of March 31, 2014 | ||||||||
2 | As of March 31, 2013 | ||||||||
Top Sovereign pension funds | ||||||||||
(US$ millions) | ||||||||||
Rank | Fund | Country | Region | 2013 AUM | ||||||
1. | Government Pension Investment | Japan | Asia Pacific | $1,221,501 | ||||||
2. | Government Pension Fund | Norway | Europe | $858,469 | ||||||
3. | National Pension | South Korea | Asia Pacific | $405,521 | ||||||
4. | Canada Pension | Canada | North America | $206,173 | 1 | |||||
5. | National Social Security | China | Asia Pacific | $205,168 | ||||||
6. | Central Provident Fund | Singapore | Asia Pacific | $200,376 | ||||||
7. | Employees Provident Fund | Malaysia | Asia Pacific | $182,216 | ||||||
8. | GEPF | South Africa | Other | $117,681 | 2 | |||||
9. | National Wealth Fund | Russia | Europe | $88,179 | 3 | |||||
10. | Future Fund | Australia | Asia Pacific | $86,196 | ||||||
11. | Fondo de Reserva Seguridad | Spain | Europe | $74,106 | ||||||
12. | Employees' Provident | India | Asia Pacific | $70,573 | 2 | |||||
13. | Labor Pension Fund | Taiwan | Asia Pacific | $59,756 | ||||||
14. | Public Institute for Social Security | Kuwait | Other | $56,871 | 1, 4 | |||||
15. | FRR | France | Europe | $50,054 | ||||||
16. | AP Fonden 3 | Sweden | Europe | $41,441 | ||||||
17. | AP Fonden 2 | Sweden | Europe | $40,434 | ||||||
18. | AP Fonden 4 | Sweden | Europe | $39,785 | ||||||
19. | AP Fonden 1 | Sweden | Europe | $38,692 | ||||||
20. | National Pensions Reserve | Ireland | Europe | $27,854 | 1 | |||||
21. | Zilverfond | Belgium | Europe | $27,527 | ||||||
22. | AP Fonden 7 | Sweden | Europe | $26,670 | ||||||
23. | State Pension | Finland | Europe | $22,524 | ||||||
24. | FEFSS | Portugal | Europe | $16,132 | ||||||
25. | Fonds de Comp./Securite Sociale | Luxembourg | Europe | $16,086 | ||||||
26. | New Zealand Superannuation | New Zealand | Asia Pacific | $14,205 | 5 | |||||
27. | Social Insurance Funds | Vietnam | Asia Pacific | $13,761 | ||||||
1 | As of March 31, 2014 | ||||||||
2 | As of March 31, 2013 | ||||||||
3 | As of January 1, 2014 | ||||||||
4 | Estimate | ||||||||
5 | As of June 30, 2013 | ||||||||
Towers Watson Investment
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