Total assets of the world’s largest 300 pension funds reached a new high of $12.7 trillion in 2011, according to Pensions & Investments and Towers Watson research.

The study showed that pension assets grew by under 2 percent in 2011, compared to 11 percent in 2010, the lowest growth rate since 2003, except for a 13 percent decline in 2008.

Asia-Pacific experienced a 9 percent five-year growth rate, while Europe had a 6 percent growth rate and North America had a 0 percent growth rate. Latin American and African regions combined had a growth rate of 8 percent.

The research also shows that the world’s top 300 pension funds now represent over 46 percent of global pension fund assets.

Defined benefit funds account for 70 percent of total assets and during 2011, dB assets grew by over 1 percent compared to 4 percent for defined contribution plan assets.

“Asset allocation for the world’s largest pension funds has changed markedly during the past six or seven years to be much more defensive in view of the on-going economic uncertainty. The top 20 funds, on average, now have roughly equal amounts in equities and bonds (c. 40% each) and the rest in alternatives and cash,” said Carl Hess, global head of investment for Towers Watson. “At the same time Asia-Pacific funds, in particular Japan, have maintained much higher allocations to bonds in keeping with prevailing investment beliefs and risk tolerance there.”

The United States is the country with the largest share of pension fund assets, accounting for 34 percent, although this has declined steadily over the past decade. Japan has the second-largest share, with over 17 percent, largely because of the Government Pension Investment Fund, which has assets of around U.S. $1.4 trillion.

The Netherlands has the third-largest market share, with over 6 percent, while the United Kingdom and Canada are fourth and fifth, with over 5 percent each.

The research shows that 47 new funds entered the ranking during the past five years, mainly from Australia (8), Mexico (4), Germany (4), Finland (2) and Russia (2). During the same period, the U.S. had a net loss of 19 funds from the ranking, yet it still accounts for 121 funds in the research. The UK is the next highest with 27 funds, down two funds from five years ago.

“The combination of a low-growth economic outlook and stubborn liabilities presents pension funds around the world with a significant set of challenges if they are to meet all their promises. Foremost among these is the growing competition among big investors globally for increasingly scarce returns,” Hess said. “In addition, they have to dynamically adapt to a riskier environment with shakier economic foundations and increasingly volatile, unpredictable markets. As such many of the top funds are prioritising governance and risk management arrangements as a matter of urgency, spurred on by the increasing likelihood of benefit default if they don’t.”

The research shows that assets held by Australian funds grew at the fastest rate during the five-year period, 18 percent in U.S. dollars, to the end of 2011, followed by Brazilian with 14 percent. During the same period the top Mexican, Danish, Taiwanese and Japanese funds grew at 11 percent, 10 percent, 9 percent and 6 percent respectively, in U.S. dollars.

Towers Watson Investment is focused on creating financial value for the world’s leading institutional investors through its expertise in risk assessment, strategic asset allocation and investment manager selection. It is a division of Towers Watson’s Risk and Financial Services business, has over 750 associates worldwide and assets under advisory of over US$2 trillion.

Instant Insights /

Assets of world's largest pensions reached $12.7 trillion in 2011

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