Global top 20 pension fund assets rebound strongly

Assets under management (AUM) at the world’s 300 largest pension funds increased in value by 8.0 per cent to a total of USD19.5 trillion in 2019, in contrast to the 0.4 per cent decline the year before, according to the latest top 300 pension funds research from the Thinking Ahead Institute.

The research, conducted in conjunction with Pensions & Investments, shows that the value of the top 20 pension funds’ AUM also rose by 8.1 per cent in the same period, equating to 40.7 per cent of the total AUM in the rankings, unchanged from the previous year.

According to the research, the compound annual growth rate of the top 20 funds during the past five years was 5.5 per cent, compared to 4.9 per cent for the top 300 funds during the same period.

Roger Urwin, co-founder of the Thinking Ahead Institute, says: “Overall, the world’s largest pension funds staged a strong rebound in growth in 2019, following a tough market environment the year before. However, this positive result does not detract from the multiple pressures currently facing pension funds, from concerns around solvency levels to rising expectations with regards to ESG considerations, particularly concerning climate and social issues. Perhaps most notably of course, we are still witnessing ramifications from the covid-19 crisis and, as we anticipate further economic uncertainty in the months ahead, these challenges make pension fund boards’ agendas more complex and stressed than at any previous time.

“Large funds are typically using best-practice governance to manage these complex agendas and retain a strategic focus. One of their top priorities now is harnessing the power of data and technology, an area where the pensions industry has generally lagged other areas of business and finance. Notwithstanding the significant costs of investing in new technologies, and the challenges of managing data, these two areas are critical tools in improving the people, processes, and information that will determine which funds prosper in the years ahead.”

Among the top 300 funds, defined contribution (DC) assets grew by 9.2 per cent during 2019, while defined benefit (DB) assets increased by 7.1 per cent. DB funds account for 64.2 per cent of the total AUM in the research, down modestly from 64.7 per cent the previous year. The share of DB funds slightly decreased across all regions - with the exception of Asia-Pacific, where the same level was maintained. DB plans dominate in North America and Asia-Pacific where they represent 74 per cent and 65 per cent respectively. To a smaller degree, DB plans also dominate in Europe (53 per cent), whereas DC plans dominate elsewhere, particularly in Latin American countries, accounting for 71 per cent of assets.

The share of reserve funds (those set aside by a national government against future liabilities) increased by 9.9 per cent, whilst hybrid fund assets (those with both DB and DC components) increased by 11.7 per cent during the year.

Sovereign and public sector pension funds account for 68.3 per cent of the total AUM in the research, with 144 funds of this type in the top 300. Sovereign pension funds account for US$5.6 trillion of the assets, while sovereign wealth funds account for US$8.2 trillion.

North America remains the largest region in terms of AUM and number of funds, accounting for 43.8 per cent of all assets in the research, followed by Asia-Pacific (26.6 per cent) and Europe (25.8 per cent). Asia-Pacific has the largest annualised growth rate in the last five years at 7.0 per cent. North America and Europe had annualised growth rates of 5.1 per cent and 2.8 per cent respectively, while Latin American and African funds’ AUM increased 2.6 per cent during the same period.

A total of 30 new funds entered the top 300 in the last five years, with the US contributing the greatest net number of new funds (14) having had ten funds leave the ranking and 24 join. In contrast, the UK had the highest net loss of funds (4) during the same period. The US continues to have the largest number of funds in the top 300 ranking (142), followed by the UK (23), Canada (18), Australia (16) and Japan (13). 

On a weighted average for the top 20 funds, assets are predominantly invested in equities (45.4 per cent) followed by fixed income (36.8 per cent) and alternatives and cash (17.8 per cent). Regarding weighted average allocations by region, North American and European funds have predominantly invested in equities (43.9 per cent and 50.9 per cent, respectively), while Asia-Pacific funds have largely allocated assets to fixed income investments (51.7 per cent).

There were no changes in the composition of the top 20 funds in 2019.