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02

Global pension fund assets reach record $30trn

Open-access content Friday 1st February 2013 — updated 1.32pm, Tuesday 5th May 2020

The total value of the assets held by pension funds in the world's 13 biggest markets increased to a record high of just under $30 trillion last year, according to figures published by Towers Watson yesterday.

The 9% increase in assets detailed in the consultancy's Global pension assets survey continues a trend that began in 2009, when global assets grew by 17%. This followed a 21% fall during the economic crisis in 2008, which took the value of assets back to 2006 levels.

Over the past decade, global pension fund assets have now increased by an average of 7% a year. In 2002 they were under half their current level.

This asset growth helped funds to improve their balance sheets by an estimated 2.7% last year, based on asset values measured against liability values, with sovereign bond yields used to discount liabilities.

Chris Ford, head of investment for Europe, Middle East and Africa at Towers Watson, said: 'Given the extreme economic and market volatility we have experienced during the past five years it was relief for many pension funds to finish the year in better shape than when it started, for a change.

'While volatile markets are expected to continue for the foreseeable future, pension funds are now generally better equipped to deal with them.'

Ford explained that a growing number of funds either had more qualified people working on their investments or had outsourced some or all of their portfolio management to third parties. Funds also have more flexible and adaptable investment strategies with a broader view of risk, he added.

In the seven largest markets covered by the survey - Australia, Canada, Japan, the Netherlands, South Africa, Switzerland, the US and the UK - allocations of assets to bonds have fallen from 40% to 33% over the past 18 years. Allocations to equities have fallen from 49% to 47% over the same period.

Since 1995, allocations to alternative assets have increased from 5% to 19%, with particular growth in investment in real estate. The biggest increase in exposure to alternative assets has been seen in the UK, up from 3% to 17%.

Ford added: 'Jittery markets and heightened risk awareness continues to make asset allocation very challenging as companies and trustees balance such priorities as long-term de-risking, short-term market opportunities, rebalancing, and maintaining a strategic asset allocation mix.

'In terms of specific asset classes, we don't think that bonds represent great value at the moment - but for those that think equities represent relatively better value, it is challenging to know what to do about it when the goal for many funds is to reduce risk overall.'

This article appeared in our February 2013 issue of The Actuary.
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