Top Global Pension Funds' Assets Reach Record High in 2010

The P&I/Towers Watson Global 300 Ranking shows despite last year’s growth in total assets, annualized growth of all funds during the past five years has fallen to just over 6%. By individual region, Europe has the highest five-year growth rate of 11% compared to Asia (9%) and North America (1%); while the Latin American and African regions combined have a growth rate for the same period of 15%, albeit from a low base. The research also shows the world’s top 300 pension funds now represent over 47% of global pension funds assets. 

According to the research, defined benefit (DB) funds account for 70% of assets. DB assets grew by 8% in 2010, compared to 13% for defined contribution (DC) funds and 21% for reserve funds. 

Carl Hess, Global Head of Investment at Towers Watson, said in a press release: “The world’s largest pension funds have changed their asset mix during the past five years to be more defensive partly due to ongoing volatility and an unpredictable growth environment, with the top 20 funds, on average, now having equal amounts in equities and bonds (c. 40% each) 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.”

According to the research, the U.S. remains the country with the largest share of pension fund assets accounting for 34%, although this has declined steadily over the last five years. Japan has the second-largest market share of 19% (14% in 2007), 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 eight years), has assets of around $1.4 trillion and maintains a conservative asset allocation. The Netherlands has the third-largest market share with 6%, while the UK and Canada are tied for fourth largest with 5% each. The research shows 54 new funds have entered the ranking during the past five years mainly from Australia (11), Denmark (5), Mexico (4), Germany (4), and Finland (4). During the same period, the U.S. and UK combined have had a net loss of 45 funds from the ranking, yet together still account for just under half of all funds. In 2010, two Russian funds joined the ranking for the first time, including the National Wealth Fund with assets of $88 billion. 

Hess added: “Top funds around the world are quickly prioritizing governance and risk management arrangements in recognition of the risk of not doing so in increasingly volatile and unpredictable markets. Those that have done so will be best placed to adapt their strategies for some of the extreme conditions we could yet encounter, while competing globally for returns in this low growth environment.” 

The research shows assets held by Brazilian funds grew at the fastest rate during the five-year period to the end of 2010, 22% in U.S. dollar terms, followed by Australia with 19%. During the same period the top Taiwanese, Mexican, Danish, and Swedish funds grew at 13%, 11%, 9%, and 8%, respectively, in U.S. dollar terms. 

Sovereign funds continue to feature strongly in the ranking with the 26 of them accounting for 29% of assets and totaling $3.7 trillion. When added to public sector funds (assets of $4.9 trillion), the total is 138, which accounts for 68% of all assets. Private sector industry funds (60) and corporate funds (102) account for 13% and 19%, respectively, of assets in the research. 

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