2008 Sends Global Pension Assets Back in Time

January 26, 2009 (PLANSPONSOR.com) - Global institutional pension fund assets in 11 major markets shrank by approximately 19% during 2008, from $25 trillion to around $20 trillion, according to Watson Wyatt's Global Pension Assets Study.

In a press release, Watson Wyatt said the contraction is in sharp contrast to an average annual five-year growth rate (to end 2007) of 12%, taking assets back to below 2005 levels. The study also reveals that the global pensions balance sheet (measured by asset values over liability values) deteriorated by around 29% in 2008, reflecting the combined effects of poor-performing assets and lower government bond yields.

According to the study, pension assets now amount to 61% of the average gross domestic product (GDP) of the countries analyzed, down from 72% 10 years ago, which takes the measure back to levels last seen in 1996.

Other findings of the study, according to the press release, include:

  • Until 2007, global pension assets had more than doubled in the previous 10 years, growing at a compound annual growth rate (CAGR) of 7.1%. However, this year’s results have reduced the 10-year CAGR to 3.7%.
  • Despite losing market share in the past 10 years, the United States, Japan and the United Kingdom remained the largest pension markets in the world, accounting for 61%, 13%, and 9% respectively of total global pension fund assets.

Asset Allocations

In the five years leading up to 2008, equity allocations among the seven largest pension markets fell from around 51% to 42%, reaching a high of 60% in 1998. During the same period, bond allocations increased to 40% from 36%.

Other assets, especially real estate and to a lesser extent hedge funds, private equity, and commodities, have grown from 12% to 17% in recent years.

According to Watson Wyatt's Global Pension Assets Study, defined contribution assets now comprise 45% of global pension assets compared with 30% in 1998.

The countries that show a larger proportion of DC assets than DB assets are the United States, Australia, and Switzerland, while Japan, Canada, and the Netherlands are close to 100% DB. Australia has the highest proportion of DC pension assets, having increased them from 76% to 88% of overall assets between 1998 and 2008, Watson Wyatt said in a press release.

During the 10-year period from 1998 to 2008, the CAGR of DC assets was 7.5%, against a rate of 1.4% for DB assets.

The 2009 Global Pension Assets Study is available at  www.watsonwyatt.com/globalpensionassets .