The World's Largest Pension Funds - 2019
Assets held by the 300 largest pension funds in the world fell by $81 billion during last year’s “tougher market environment,” according to new research from Willis Towers Watson.The Thinking Ahead Institute put out a statement on how the top 20 pension funds’ AUM declined for first time in seven years:
At the end of last year, these retirement funds managed a combined $18.03 trillion, down from about $18.11 trillion at the end of 2017, the firm’s Thinking Ahead Institute said in its annual World 300 report with Pensions & Investments. The decline compares with a 15.1 percent jump in assets under management in 2017.
Among the 20 biggest retirement funds (click on image below), meanwhile, assets under management shrank last year by 1.6 percent to $7.3 trillion — marking the first time their share of total pension assets fell since 2012. In 2017, by comparison, the value of the top 20 funds had jumped by 17.4 percent.
“A tougher market environment in 2018 meant AUM growth paused, but the underlying trend remains one of growing pension markets worldwide,” Bob Collie, head of research at the Thinking Ahead Institute, said in a statement on the findings.
Over the past five years, for instance, Willis Towers Watson said that the top 300 pensions increased by 3.9 percent annually, while the 20 biggest funds had an annualized growth rate of 4.7 percent.
On average, the top 20 funds have 40.6 percent of their portfolios allocated to equities, 37.4 percent invested in bonds, and the rest in alternatives and cash.
“The pace of change in the investment world is a challenge, and scale is a huge advantage in a lot of ways,” Collie said. “Many of the most interesting and important developments start with the largest funds, and as new investment ideas like the total portfolio approach and universal ownership gain traction in these organizations, they influence the whole market.”
Although 2018 saw an overall dip in assets for the world’s largest retirement funds, there was at least one area of growth. According to the report, assets under management by defined contribution plans rose by 5.1 percent, in contrast to the 0.2 percent decline for defined benefit funds.
However, defined benefit assets still made up nearly two-thirds of pension assets managed by the top 300 funds at the end of 2018, according to Willis Towers Watson. Defined contribution assets, meanwhile, accounted for 23.9 percent of the total, with the rest held in government reserve funds and hybrid funds incorporating both defined benefit and defined contribution elements.
Assets under management (AUM) at the world’s 300 largest pension funds fell in value by 0.4% to a total of US$18 trillion in 2018, in sharp contrast to an increase of 15.1% in 2017, according to the latest World 300 research from the Thinking Ahead Institute.Let me begin by thanking Ken Akoundi of InvestDNA.net for bringing this up to my attention. Ken sends an email every day to his subscribers with links to interesting topics (mostly finance but other areas too). You can subscribe to his daily email with links for free here.
The research, conducted in conjunction with Pensions & Investments, a leading U.S. investment newspaper, shows that the value of the top 20 pension funds’ AUM fell by 1.6% in 2018, equating to 40.7% of the total AUM in the rankings. This is the first year since 2012 that the top 20 funds’ share of the total AUM has fallen. However, the top 20 funds’ growth rate of 4.7% during the period 2013 to 2018 remained higher than the growth rate of 3.9% for the top 300 funds during the same period.
Emerging markets have become more prominent in the rankings in recent years, with the Employees’ Provident Fund (India) a new entrant into the top 20 in 2017. A total of four new entrants from emerging market countries have entered the top 20 over the last ten years, from Asia (3) and Africa (1).
Bob Collie, Head of Research for the Thinking Ahead Group, said: “A tougher market environment in 2018 meant AUM growth paused, but the underlying trend remains one of growing pension markets worldwide. The pace of change in the investment world is a challenge, and scale is a huge advantage in a lot of ways. Many of the most interesting and important developments start with the largest funds, and as new investment ideas like the total portfolio approach and universal ownership gain traction in these organisations, they influence the whole market. It’s particularly notable that a majority of the largest funds are now highlighting the importance of sustainability. ESG factors are now significant financial considerations. Beyond that, there’s also an evolving recognition of the role large investors play within society, and the responsibility that comes with it.”
Among the top 300 funds, defined contribution (DC) assets increased by 5.1% during 2018, while defined benefit (DB) assets declined by 0.2%. DB funds account for 64.7% of the total AUM, with this share remaining unchanged from the previous year. However, the share of DB funds slightly decreased across all regions - with the exception of Europe where the same level was maintained. DB plans dominate in Europe, North America and Asia-Pacific where they represent 53.7%, 74.2% and 65.1% by assets respectively, whereas DC plans dominate 70% of assets elsewhere, particularly in Latin American countries.
The share of reserve funds (those set aside by a national government against future liabilities) decreased by 9.5%, whilst hybrid fund assets (those with both DB and DC components) decreased by 4.6%.
Sovereign and public sector pension funds account for 68.5% of the total AUM in the ranking, with 145 funds in the top 300. Sovereign pension funds represent US$5.1 trillion in assets, while sovereign wealth funds account for US$7.9 trillion.
North America remains the largest region in terms of AUM and number of funds, accounting for 45.2% of all assets in the research, followed by Asia-Pacific (26.2%) and Europe (24.9%). Asia-Pacific’s AUM and fund share has declined after several years of expansion, while Europe’s share has fallen to the lowest value in five years. During the same period, African and Latin American funds’ AUM increased by 0.7%. North America had the fastest annualised growth rate during the period 2013 to 2018 at 5.8%, while Europe and Asia-Pacific had annualised growth rates of 0.5% and 5.2% respectively.
A total of 26 new funds entered the top 300 in the last five years, with the US contributing the greatest net number of new funds (15). In contrast, Germany experienced the highest net loss of funds during the same period (6). The US continues to have the largest number of funds in the top 300 ranking (141), followed by the UK (24), Canada (17), Australia (16) and Japan (15).
On a weighted average for the top 20, assets are predominantly invested in equities (44.5%) followed by fixed income (37.2%) and alternatives and cash (18.3%). Regarding weighted average allocations by region, Asia-Pacific funds are predominantly invested in fixed income (53.8%), while North American funds are largely invested in equities (46.7%). European funds have demonstrated a more balanced allocation between equities and fixed income, at 49.1% and 36.2% respectively.
Top 20 pension funds (US $ millions)
The Thinking Ahead Institute was established in January 2015 and is a global not-for-profit investment research and innovation member group made up of engaged institutional asset owners and service providers committed to changing and improving the investment industry for the benefit of the end saver. It has over 40 members around the world and is an outgrowth of Willis Towers Watson Investments’ Thinking Ahead Group, which was set up in 2002.
About Willis Towers Watson
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.
You can read the full report on the world's largest pension funds - 2019 by clicking here and for the PDF file of the report, click here.
The main highlights of the report are:
- Assets under management of the world's largest pension funds total US$18.0 trillion in 2018.
- Funds decreased their value by 0.4% in 2018, compared to an increase of 15.1% in 2017.
- The top 20 funds fell by 1.6%, equating to 40.7% of total AUM, down from 41.1% in 2017.
- North America remains the largest region in terms of AUM, accounting for 45.32% of all assets in the research.
- Europe and Asia-Pacific AUM in the ranking represents 24.9% and 26.2% respectively.
- North America experienced the largest annualized growth during the period 2013-2018 (5.8%). Europe and Asia-Pacific showed annualised growth rates of 0.5% and 5.2% respectively over the same period.
- The US accounts for 141 of the funds in the ranking. Since 2013, it has seen six of its funds drop out from the top 300, while 21 new funds joined the ranking.
- Sovereign and public sector pension funds account for 68.5% of the total assets, with 145 funds in the top 300.
- Defined benefit (DB) funds account for 64.7% of the total assets in the ranking. DB, Reserve funds and Hybrid* funds’ assets decreased by 0.2%, 9.5% and 4.6% respectively, compared to a 5.1% increase for defined contribution (DC) plans’ assets.
- On average, the top 20 funds invested approximately 40.6% of their assets in equities, 37.4% in fixed income securities and 22% in alternatives and cash.
- North American funds have predominantly invested in equities while there was a higher preference for fixed income in Asia-Pacific funds.
What are my thoughts? Briefly, here are some points:
- Looking at the list, I was surprised not to see the Caisse de dépôt et placement du Québec (CDPQ) whose assets recently topped $326 billion (CAD) on the list. The same for PSP Investments with net assets of $168 billion (CAD) at the end of its fiscal 2019. And it's called the Canada Pension Plan Investment Board (CPPIB) which saw its assets top $400 billion (CAD) as at the end of its fiscal Q1.
- Obviously, Japan's GPIF tops the list with Norway's large sovereign wealth fund coming in a close second. These two behemoths account for most of the swings in AUM among the top 20 global pensions because as I've stated before, these two giant funds have too much beta in their portfolio since their allocation to private markets is a fraction of what it is at large US and Canadian pensions. Also, make sure to read my recent comment on GPIF's CIO warning of synchronized global markets and another recent comment on the Federal Retirement Thrift Investment Board, the largest defined-contribution plan in the world which was recently urged by senior senators to reverse some investments in China.
- The biggest problem with the Think Ahead Institute's study is it only covers assets, but as I keep repeating, pensions are all about managing assets and liabilities. The pension world is reeling from plunging yields this year as liabilities have soared and many chronically underfunded pensions are going to face difficult choices if another crisis strikes them.
- North America remains the largest region in terms of AUM and number of funds, accounting for 45.2% of all assets in the research and it experienced the largest annualized growth during the period 2013-2018 (5.8%). Again, if all of Canada's large funds were properly represented, I'm sure it's because of their outperformance but many US pensions also experienced very nice growth in their AUM due to their exposure to US public equities.
- Emerging markets have become more prominent in the rankings in recent years, with the Employees’ Provident Fund (India) a new entrant into the top 20 in 2017. A total of four new entrants from emerging market countries have entered the top 20 over the last ten years, from Asia (3) and Africa (1).
- Denmark’s ATP re-entered the top 20 funds, having dropped out a year ago. I recently wrote about ATP's record 27% gain in the first half of 2019, mostly owing to gains in government and mortgage bonds and their liability-driven investment approach, swapping into long-term swaps to match their long dated liabilities.
- On average, the top 20 funds invested approximately 40.6% of their assets in equities, 37.4% in fixed income securities and 22% in alternatives and cash. Using their size, scale is a huge advantage for the largest funds, allowing them to scale into private markets, reducing their exposure to public markets and getting better risk-adjusted returns over the long run.
- Defined contribution plans rose by 5.1% in 2018, in contrast to the 0.2 percent decline for defined benefit funds. However, defined benefit assets still made up nearly two-thirds of pension assets managed by the top 300 funds at the end of 2018,which is good news. I'm a big believer in large, well-governed defined benefit plans which invest across public and private markets all over the world.
Below, Binyamin Appelbaum, New York Times opinion writer, joins "Squawk Box" to talk about the economy and the Fed and his new book, The Economists' Hour: False Prophets, Free Markets, and the Fracture of Society.
Listen carefully to his comments on addressing rising inequality. I believe large global pensions are going to have to be part of the solution to make sure more people can retire in dignity and security.
And the Maestro, Alan Greenspan, former chairman of the Federal Reserve, joins "Squawk on the Street" to discuss the spread of negative interest rates around the world, the risk of recession in the US and more.