Global institutional pension fund assets in the 13 major markets grew by 4% during 2011, reaching a new high of US$28 trillion, according to Towers Watson’s Global Pension Assets Study. Pension fund assets for these markets totalled US$26 trillion in 2010. The 13 markets are Australia, Brazil, Canada, France, Germany, Hong Kong, Ireland, Japan, the Netherlands, South Africa, Switzerland, the U.K. and the U.S.
The growth is the continuation of a trend that started in 2009 when assets grew 17%—in sharp contrast to a 21% fall during 2008. Global pension fund assets have now grown more than 6%, on average, annually (in U.S. dollars) since 2001, when they were valued at US$15 trillion.
However, despite the growth in assets, pension fund balance sheets weakened globally during 2011, with the ratio of global assets to liabilities well down from its peak achieved in 1999. According to the study, pension assets now amount to 72% of global GDP—lower than in 2010 (76%) but substantially higher than the 61% recorded in 2008.
“In case investors needed any reminding, the last six months of 2011 have driven home the need to have investment strategies that are flexible and adaptable, and that contain a broader view of risk,” said Carl Hess, global head of investment with Towers Watson. “This approach makes greater allowance for extreme events, which are occurring more frequently, while accommodating the softer elements of risk, such as credit and liquidity.”
The study also found that all markets, except Japan, have positive 10-year compound annual growth rate (CAGR) figures (in local currency). In terms of 10-year CAGR figures (in local currency), Brazil has the highest growth with 14%, followed by South Africa (13%), Hong Kong (10%) and Australia (9%). The lowest are Japan (-1%), France (1%), Switzerland (4%) and Ireland (4%).
Ten-year figures (in local currency) show that the U.K. has grown its pension assets the most as a proportion of GDP (up 30% to 101% of GDP), followed by Australia (up 24% to 96% of GDP), the Netherlands (up 23% to 133% of GDP), Hong Kong (up 15% to 34% of GDP) and the U.S. (by 12% to 107% of GDP).
For the seven largest pension markets (more than 95% of total assets in the study), allocations to alternative assets (especially real estate and, to a lesser extent, hedge funds, private equity and commodities) have grown from 5% to 20% since 1995. As well, in the past decade, most countries have increased their exposure to alternative assets, with the U.S. increasing them the most (from 5% to 25%), followed by Switzerland (9% to 28%), the Netherlands (1% to 14%), Australia (14% to 24%) and Canada (10% to 20%).
“The volatility in markets and the heightened risk awareness associated with possible sovereign defaults continues to make asset allocation incredibly challenging as companies and trustees balance such priorities as long-term de-risking, short-term market opportunities, rebalancing or maintaining a strategic asset allocation mix,” said Hess.
The U.S., Japan and the U.K. remain the largest pension markets in the world, accounting for 59%, 12% and 9%, respectively, of total pension fund assets globally.