World’s Top Pension Funds See the Largest Assets Decline in 20 Years

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Willis Towers Watson put out a press release stating the world’s top pension funds see the largest assets fall in 20 years:

North America now accounts for nearly half of assets in world’s 300 largest pension funds

ARLINGTON, Va., Sept. 11, 2023 (GLOBE NEWSWIRE) -- The world’s largest 300 pension funds saw their assets decline for the first time since 2018, according to this year’s Global Top 300 Pensions Funds conducted by WTW’s Thinking Ahead Institute. This drop is on par with the decline observed in 2008, occurring at a pace that has only been encountered twice in the 20-year history of this annual study.

The research highlights high-level trends in the pension fund industry and provides information on the changing composition of the top 300 list of pension funds globally as well as the characteristics and investment allocations of these pension funds.

By the end of 2022, combined assets of the world’s top 300 pension funds had decreased by 12.9% and now total $20.6 trillion compared with $23.6 trillion at the end of 2021. This represents a sharp correction compared with the 8.9% increase in the assets of the largest 300 pension funds in the previous year. The latest drop is also greater than the 12.6% decline in 2008, at the time of the global financial crisis. Until now, the 2008 fall had been the fastest annual decline recorded in the 20 years of the study.

The U.K. and Japan had the largest number of pension funds fall out of the top 300 globally. The U.K. gilts crisis of September 2022 and the ensuing market instability were significant contributing factors, as was the continuing shift from defined benefit pensions to smaller defined contribution plans.

In 2022, sovereign and public sector pension funds accounted for 152 funds in the top 300, representing 70.9% of total assets. Sovereign pension funds accounted for $6.2 trillion in assets, while sovereign wealth funds totaled $11.6 trillion. Sovereign wealth funds’ assets grew by 13.9% during 2022, compared with a decrease of 10.6% for the sovereign pension funds in the Thinking Ahead Institute top 300 study.

“We sounded a note of caution last year when reporting on a previous record. In last year’s research, we anticipated rising inflation and interest rate pressures, as well as the potential for slowing growth the following year,” said Jessica Gao, director at the Thinking Ahead Institute. “With the latest data, we have witnessed the drop in the pension assets, with a fragile global economy seeing equity and bond markets reverse previous gains.

“2022 recorded historic levels of economic uncertainty and market instability. A convergence of regime, geopolitical and systemic risks magnified in a VUCA-fest (characterised by volatility, uncertainty, complexity, and ambiguity), challenging pension funds to navigate and adapt within this rapidly changing environment.”

Compared to all pension funds of any size, the world’s largest 300 pension funds now represent 43.0% of the global pension assets (compared to 41.1% in 2021), according to the Thinking Ahead Institute’s annual Global Pension Assets Study which estimates global pension fund assets across 22 major pension markets (the P22).

Regionally, North America now accounts for 45.6% of assets in the world’s 300 largest pension funds, while European pension funds account for 24.1% and Asia-Pacific 26.4%.

Looking at the very largest, the assets of the top 20 pension funds decreased by 11.8% in the last year, a slight improvement compared to the 12.9% downturn observed within the top 300 funds overall. The top 20 funds accounted for 41.5% of the asset under management (AUM) in the ranking, modestly above 2021’s share of 41.0%.

The Government Pension Investment Fund of Japan (GPIF) remains the world’s largest pension fund, with AUM of US$1.4 trillion. It has ranked top since 2002. Meanwhile, the Employees’ Provident Fund of India was the only new entrant in the top 20 funds for 2022.

Gao concludes: “While market performance has improved from 2022 to 2023, we continue to proceed with a high degree of caution. Pensions schemes are operating in a new environment, where conditions are changing faster and faster each day.

“Asset owners are increasingly influenced by technological advancements and the rise of artificial intelligence. Balancing the need to catch up with asset managers’ AI-driven insights while retaining control over their investment mandates underscores the critical role of effective collaboration and strategic adaptation for AOs in an investment ecosystem with increasingly influential technologies.

“Likewise, rightsizing sustainability efforts has become a crucial balancing act, with overly ambitious commitments risking the fund’s legitimacy, and too small a commitment resulting in missed opportunities.”

Top 20 pension funds (US$ millions)

Rank

Fund

Market

Total Assets

1

Government Pension Investment

Japan

1,448,643

2

Government Pension Fund

Norway

1,300,214

3

National Pension

South Korea

706,496

4

Federal Retirement Thrift

U.S.

689,858

5

ABP

Netherlands

490,382

6

California Public Employees

U.S.

432,235

7

Canada Pension

Canada

420,7641

8

Central Provident Fund

Singapore

406,711

9

National Social Security

China

347,2142

10

California State Teachers

U.S.

290,384

11

New York State Common

U.S.

233,227

12

PFZW

Netherlands

231,781

13

New York City Retirement

U.S.

228,170

14

Employees Provident Fund

Malaysia

227,781

15

Local Government Officials

Japan

207,145

16

Florida State Board

U.S.

183,092

17

Ontario Teachers

Canada

182,410

18

AustralianSuper

Australia

176,4463

19

Texas Teachers

U.S.

173,277

20

Employees’ Provident

India

158,7222

US funds’ data is as of September 30, 2022.

Non-US funds’ data is as of December 31, 2022, except where shown.

  1. As of March 31, 2023

  2. Estimate

  3. As of June 30, 2022

About the Thinking Ahead Institute
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 institutional asset owners and asset managers committed to mobilising capital for a sustainable future. It has over 55 members around the world, with combined responsibility for over US$16 trillion*, and is an outgrowth of WTW Investments’ Thinking Ahead Group - set up in 2002.

*As of December 31, 2022

About WTW

At WTW (NASDAQ: WTW), we provide data-driven, insight-led solutions in the areas of people, risk and capital. Leveraging the global view and local expertise of our colleagues serving 140 countries and markets, we help organizations sharpen their strategy, enhance organizational resilience, motivate their workforce and maximize performance.

Working shoulder to shoulder with our clients, we uncover opportunities for sustainable success—and provide perspective that moves you.

Learn more at wtwco.com

The same press release can be read on the Thinking Ahead Institute's website here.

The global top 300 pension funds is an annual study conducted by the Thinking Ahead Institute, in conjunction with Pensions and Investments. The research highlights high-level trends in the pension fund industry and provides information on how the characteristics of these top funds have changed.

You can download the latest report here and below, read the key findings: 

  • Assets Under Management (AUM) of the top 300 pension funds total US$20.6 trillion, having reduced by 12.9% in 2022, down from 8.9% growth the previous year
  • Volatility and uncertainty in the global economy have been at their highest in a generation. High inflation and higher interest rates disrupted equity and bond markets worldwide piling the pressure on pension funds to adapt their strategies.
  • Operating in this “all change” environment requires strong governance which is crucial for pension funds to maintain long-term stability
  • AOs have a particular reliance on the technology of their AMs. Embracing Artificial Intelligence (AI) can introduce both challenges and opportunities for AOs as they seek better access to and application of decision-useful data.
  • Pension funds have continued to integrate ESG factors into their investment programs. There are resource constraints and political issues affecting their trajectory.
  • The top 20 pension funds make up 41.5% of total AUM in 2022, up from 41.0% the previous year.

 


Not surprisingly, global pension assets got hit last year as stocks and bonds got hit with inflation rising to historic high levels:

What strikes me in this report is how many of Canada's Maple Eight are not in the top 20.

In fact, the report is missing BCI, CDPQ, PSP Investments, AIMCo and others (like IMCO) because what it does is include their clients and treats each pension plan from clients individually.

In my humble opinion, this is wrong and they should just treat these large Canadian pension funds as one entity with many clients for the purpose of this report.

The other reason I wanted to include all of Canada's Maple Eight is because their assets have not declined anywhere near the median.

This is because of their asset mix which is heavily weighted n private markets and their approach where they co-invest with top funds to lower fee drag.

They have the right governance and use their long investment horizon, capital flows and leverage wisely to seek opportunities as they arise.

As far as 2023, the stock market came back strong this year led by seven mega cap tech stocks (the "Magnificent Seven") but with the world on the cusp of a major global recession, I am very concerned that many pension funds are not prepared for what lies ahead.

True, if rates stay high or go higher as inflation persists, then pensions can buy bonds as a refuge.

We shall see how this all plays out but one thing is for sure, we are only beginning to see the effects of massive rate hikes and I believe the Fed will pause and risk assets will get clobbered as the global recession takes form.

So the VUCA-fest (characterised by volatility, uncertainty, complexity, and ambiguity) of 2022 the authors note for last year can come back even stronger in the year ahead.

Below, Marvin Loh, State Street Senior Global Macro Strategist, says the risk of a recession in the US is still out there. Subadra Rajappa, Societe Generale Head of US Rates Strategy, says the data this week will guide the dots. Kristina Hooper, Invesco Chief Global Market Strategist, says the ongoing UAW disputes are a "rearview mirror" issue for the US economy. Paolo Gentiloni, European Commission Economy Commissioner, says Europe is near the peak of interest rates. Mandeep Singh, Bloomberg Intelligence, previews Apple's product event on Tuesday.

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