Pension Fund Assets Reach Record

Terry Flanagan

The performance of equity markets pushed total assets of the 300 largest global pension funds to almost $15 trillion last year according to research from magazine Pensions & Investments and consultant Towers Watson.

Assets grew by over 6.2% in 2013 to reach a new high of $14.9 trillion, up from US$14 trillion in 2012 according to the research. The P&I / Towers Watson global 300 report said the world’s top 300 pension funds now represent around 47% of global pension assets.

Chris Ford, global head of Investment at Towers Watson, said in a statement: “It is noteworthy that the 13 major pensions markets are now more than double the size they were ten years ago and pension assets now amount to around 78% of global GDP, substantially higher than the 61% recorded in 2008.”

Seven pension funds in the report said 2013 was one of the best for performance with five attributed to the growth in equity markets.

“The exceptional strength of equity markets this fiscal year contributed significantly to the fund’s 16.5% gross return, our second highest annual return since inception,” added Mark Wiseman, chief executive officer of the Canada Pension Plan Investment Board in the report.

Portfolio diversification was highlighted by 11 pension funds as a key strategy for their investment performance.

“We continued to diversify our investments across more markets, countries and currencies in 2013 to give the fund broader exposure to the global economy,” said Oystein Olsen, governor of the Central Bank of Norway, who is responsible for the operational management of the government pension fund, in the report.

Pension  funds also warned that future growth would be harder to achieve as central banks stop quantitative easing and raise interest rates.

Ashbel Williams, chief investment officer at Florida State Board of Administration, said in the report: “With uncertainty surrounding US fiscal policy, global economies and the undetermined tapering of quantitative easing by the Federal Reserve, fixed income absolute returns will likely remain challenged.”

Ford added; “Most funds are unlikely to get adequate returns from the market in the coming year and will need to work hard in ‘added-value spaces’ to find the couple of extra per cent per annum they need. Investors will need to be well organised to deliver this and it will likely involve a substantial shift in focus away from security selection in equities and towards capturing returns from alternative markets and strategies.”

The weighted average of allocations showed a higher percentage for fixed income at 44.9% and a decrease in both equities, 41.2%, and alternatives & cash at 13.9%.

Featured image via emiliezhang/Dollar Photo Club

“The weighted average results were heavily influenced by the allocation of the Government Pension Investment fund (Japan) and the rest of the Asia-Pacific funds which invested more than 65% of the assets in fixed income,” said the report. “North American funds, on the other hand, invested a higher share in equities (50.2%).”

The US has the largest share of pension fund assets at 36% according to the report followed by Japan with 13% and the Netherlands in third with 7%.

In the past five years 38 new funds entered the ranking with three new funds coming from Australia and two from South Korea, Russia, Poland, Colombia and Canada.


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