While total assets of the world’s largest 300 pension funds fell by over 3% in 2015 to a sum of US$14.8 trillion overall, Asia Pacific saw an increase of around 1% during the year, according to Pensions & Investments and Willis Towers Watson research.
Despite this first drop in assets since the beginning of the 2008 global financial crisis, cumulative asset growth since then is almost 19%.
The research shows that the assets of the top six Asia Pacific funds increased by around 1% during 2015, as compared to a decrease of 2% for the top 20 funds. These six biggest Asia Pacific funds accounted for 41% of the top 20 funds’ assets in the ranking.
The research also shows that 30 Asia Pacific sovereign and public sector pension funds had combined assets of US$3.4 trillion in 2015 and accounted for around 23% of all assets. In addition, the other sovereign and public sector funds (112 in other regions) had assets of US$6.6 trillion and accounted for 44% of all assets.
Private sector industry funds (58) and corporate funds (100) account for 14% and 19%, respectively, of assets in the research.
Naomi Denning, Managing Director, Investments for Asia Pacific at Willis Towers Watson, said: “The continuing tides of asset rises and falls combined with increasing liabilities bears testament to how difficult it has become for funds to meet their respective missions.”
Denning notes that large asset owners can have an advantage in this volatile, complex and ambiguous investment world by improving organizational effectiveness to enhance decision making.
“It has become clear that good investment governance is the key determinant in producing the competitive edge necessary to transform portfolios and succeed in the ever-evolving mission of trying to pay benefits securely, affordably and in full.”
Regional growth rates
By individual region in the top 300, North America had the highest five-year compound growth rate of around 6% compared to Europe (around 4%) and Asia Pacific (around 1%) according to the research.
The research shows that 27 new funds entered the ranking during the past five years and, on a net basis, the U.S. contributed the most new funds (ten funds) followed by the UK, South Korea, Australia, France, Peru, Vietnam and Italy.
During the same period, Mexico had the largest net loss of funds from the ranking (four funds), followed by Switzerland, Germany and Japan (three funds).
The U.S. has the largest number of funds in the research (131), followed by the U.K. (27), Canada (19), Australia (16), Japan (15) and the Netherlands (12).
According to the research during 2015, only hybrid plan assets grew, by almost 14%, while all other fund types declined: defined benefit (DB) plans assets by almost 5%; defined contribution (DC) by over 2%; and reserve funds2 by 0.3%. DB funds accounted for 66% of the total assets in the ranking.
U.S. has largest share of pension fund assets
The research also shows that the U.S. remains the country with the largest share of pension fund assets accounting for around 38%, while Japan has the second-largest market share with around 12%.
The Netherlands has the third-largest market share with over 6%, while Norway and the UK are fourth and fifth largest with around a 6% and 5% share respectively. The world’s top 300 pension funds now represent around 42% of global pension assets.
“The investment landscape is changing rapidly as more asset owners address their relatively weak investment governance position to become more effective in their investment process and practices,” says Denning.
“Twenty years ago world-class asset owners were largely run through external delegation to outside firms. Now we're seeing much stronger capabilities among the biggest asset owners, and best investment practice is usually associated with getting a good balance between internal resources and external delegations.”
Denning adds that this strengthening of resources is also enabling these funds to be more keyed into their broader responsibilities, whether on the issues of ESG (environmental, social and governance factors), their ownership responsibilities and opportunities and, for a few funds, their pro-social impacts.
“This trend towards recognizing the inter-connections integral to institutional investing is likely to accelerate and increasingly be an opportunity for differentiation.”