Top 300 largest pension funds’ AUM hit $15trn in 2014

Consultant Towers Watson, in partnership with Pensions & Investments, has found out that total assets under management of the world’s largest 300 pension funds reach over $15trn (€13.4trn), having rose by 3% in 2014 against 6% in 2013.

The amount of global pension funds’ assets has almost doubled in ten years since in 2004, they were reaching $8.4trn (€7.5trn).

The report also highlights that the world’s top 300 pension funds now represent around 43% of global pension assets.

According to the research, defined benefit (DB) funds account for 67% of total assets, down from 75% five years ago. It also shows that the defined contribution (DC) assets have grown the most, by nearly 5% while defined benefit assets’ growth reached almost 4%.

Among the top 20 pensions funds ranked by total assets according to the methodology of Towers Watson, seven are based in the US.

The Japanese government pension investment fund remains at the top totalling more than $1.1trn (€986bn) in assets as at March 2015, followed by the Norwegian government pension fund ($884bn – €792.4bn) and the South Korean national pension fund ($429.7bn – €385.1bn).

The US remains the country with the largest share of pension fund assets accounting for around 38%, followed by Japan with around 12% and the Netherlands with 7%. Norway and Canada are fourth and fifth largest, respectively, with around 6% share each.

The US keeps the largest number of funds in the research (128), followed by the U.K. (27), Canada (19), Australia (16), Japan (15) and the Netherlands (13).

Chris Ford, global head of investment at Towers Watson, said: “Ten years ago it would have been a brave person to have predicted a doubling of top pension fund assets globally. While liabilities have also ballooned, this still represents a significant increase in savings wealth.

“However there is a growing feeling that the investment industry, despite having grown assets, has not focused enough on the end beneficiaries’ needs or on managing costs in the ‘investment food chain’. Instead it has focussed on relative returns over total returns, and has allowed excessive risk to build up in portfolios at the same time as costs have increased to a level that is far higher than can be justified in aggregate.

“The top funds are already moving to address this and related issues and we can expect a very different industry in ten years’ time – or sooner given the inexorable shift to DC where the end beneficiary does indeed come first.”

The research shows that 27 sovereign pension funds, totalling $4.2trn (€3.8trn), account for 28% of the top 300 world largest pensions funds’ assets.

The 114 public-sector funds in the research had assets of $6trn (€5.4trn) in 2014 and account for 39% of the total. Private-sector industry funds (60) and corporate funds (99) account for 14% and 19%, respectively, of assets in the research.

Ford commented : “We have seen during the year a number of large funds making significant, and sometimes high profile, changes to the way they invest. This is in line with a single-minded approach of working hard in ‘added-value spaces’ to find the extra returns that no longer come from the market.

“In the process, they are increasingly thinking about diversification in the context of all return drivers and adding the necessary governance or outsourcing to ensure success.

“This is likely to increasingly polarise winners and losers and could reshape the investment industry, completing the shift away from siloed – and indeed expensive – ‘asset class’ thinking and increasingly breaking down the distinction between ‘traditional’ and ‘alternative’ investments.”

Adrien Paredes-Vanheule
Adrien Paredes-Vanheule is French-Speaking Europe Correspondent for InvestmentEurope, covering France, Belgium, Geneva and Monaco. Prior to joining InvestmentEurope, he spent almost five years writing for various publications in Monaco, primarily as a criminal and financial court reporter. Before that, he worked for newspapers and radio stations in France, in particular in Lyon.

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