Global pension fund assets reach record high

Global institutional pension fund assets in the 13 major markets increased by 12% during 2010 to reach a record high of $26 trillion, according to research from Towers Watson.

Its Global Pension Assets Study found the UK is the third largest pensions market, accounting for 9% of total pension fund assets globally.

According to Towers Watson, the growth is a continuation of a trend which started in 2009 when assets grew by 17%, but in sharp contrast to a 21% fall during 2008 which took assets back to 2006 levels.

The study also found pension fund balance sheets globally continued to strengthen during 2010, although the asset/liability ratio is still down from its 1998 level.

The 13 largest pension markets are Australia, Canada, Brazil, France, Germany, Hong Kong, Ireland, Japan, Netherlands, South Africa, Switzerland, the UK and the US.

On average, global pension assets in these markets, measured in local currency, grew by over 9% in 2010, taking the ten-year average growth rate to almost 6%.

The US, Japan and the UK remain the largest pensions markets in the world, accounting for 58%, 13% and 9% respectively of total pension fund assets globally.

All markets saw growth in pension assets in 2010, and all markets in the study have positive ten-year compound annual growth rate (CAGR) figures.

Bond allocations for the seven largest pension markets, Australia, Canada, Japan, Netherlands, Switzerland, the UK and the US, have decreased by 7% in aggregate during the past 15 years (40% to 33%), while allocations to equities have fallen by 2% (to 47%) during the same period.

Other assets, especially real estate and hedge funds, private equity and commodities, have grown from 5% to 19% since 1995.

Equity allocations in the UK have fallen from 74% in 2000 to 55% in 2010. Similarly, in the US, allocations have fallen from 64% to 49% during the same period.

Australia, Canada and the US have increased their proportion of alternative assets the most from nearly 8% in 2000 to more than 20% in 2010.

Conversely, during the past decade, allocations to alternatives have remained relatively constant in Switzerland (29%), the UK (7%) and Japan (4%).

Carl Hess, global head of investment at Towers Watson, said: “The global financial crisis is still with us and the ongoing aftershocks are a continual reminder that the nascent economic recovery is still very tenuous.

“While nervousness about the volatility of markets and extreme events is just below the surface, there is broad acceptance this is the new normal and that investors will need investment strategies that are more flexible and adaptable than they have been in the past.

“So while the recovery of the markets is to be welcomed, it should not distract from the major issues confronting the industry and the weaknesses in the system which governments and companies must face up to.”

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