Thumbnail: 

Global institutional pension fund assets in the 13 major markets grew by 4% during 2011 to reach a new high of US$28 trillion, up from US$26 trillion in 2010 according to Towers Watson’s Global Pension Assets Study.

The growth is the continuation of a trend which started in 2009 when assets grew 17%, and in sharp contrast to a 21% fall during 2008 which took assets back to 2006 levels. Global pension fund assets have now grown at over  6% on average per annum (in USD) since 2001, when they were valued at US$15 trillion.

The study reveals that, 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.

By contrast, both Australia and Hong Kong’s dominance of defined contribution assets means that their balance sheets have not been impacted to the same extent as other countries. According to the study, pension assets now amount to 72% of global GDP, which while lower than in 2010 (76%) is substantially higher than the 61% recorded in 2008.

Naomi Denning, Managing Director of Investment Services for Asia Pacific at Towers Watson, says the last six months of 2011 have driven home the need to have investment strategies that are flexible and adaptable and which contain a broader view of risk.

"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," notes Denning.

Denning also says that the past few years have focused attention on the multi-faceted nature of risk within our increasingly precarious financial systems. At the same time risk management processes have evolved somewhat to factor in more qualitative measures.

"However, there is still some way to go before the appropriate measurement and management of risk is firmly embedded in the governance structures of most pension funds.”

MORE ARTICLES ON PENSION FUNDS

Quote Image: