Assets under management (AuM) at the world’s top 300 pension funds increased by 8.9% to reach a new record, totaling $23.6 trillion in 2021, according to the annual research conducted by WTW’s Thinking Ahead Institute. The research highlights high-level trends in the pension fund industry and provides information on the changing characteristics of these funds.
While total AuM has reached record highs, growth has slowed from 11.5% in 2020 to 8.9% in 2021. This was to be expected after a very strong performance in asset markets over 2020; however, the latest performance is enough to take five-year cumulative growth to 50.2% in the period between 2016 and 2021.
Marisa Hall, co-head of the Thinking Ahead Institute, reflects on key insights from the research: “This is a story of two halves. On the one hand, a new record for the world’s major pension funds illustrates the optimism that defied a global pandemic. Yet on the other, growth is slowing and the long-term dashboard is flashing amber.
“Looking ahead, rising inflation and subsequent central bank action are likely to cause global growth to falter, which may in turn endanger longer term the funding status of pension funds.
“Pension funds are also under immense governance pressure from all sides, with a growing politicization of ESG [environmental, social and governance] in some regions meeting calls for more substantial and urgent climate action. The addition of stark short-term economic pressures alongside these structural long-term changes will only add to the difficulty of balancing short-term financial resilience with long-term financial and climate sustainability.”
North America now accounts for 45.6% of assets of the world’s 300 largest pension funds. This is up from 41.7% at the end of 2020. European pension funds account for 25.9%; Asia Pacific funds account for 25.5%, with the remaining 4% from Latin America and Africa.
North America’s increased global share was largely powered by the fastest annualized growth in invested assets, up 9.2%, followed by Europe (+8.3%), Asia Pacific (+8.0%), and Latin America and Africa (+3.9%) during the same period.
The U.S. now accounts for 39.6% of top 300 pension fund AuM and has almost half the funds in the ranking, with 148. After the U.S., the countries with the largest number of pension funds in the ranking are the U.K. (23), Canada (18), Australia (15), the Netherlands (12) and Japan (11). Since 2016, a total of 37 new funds have entered the ranking, with the U.S. accounting for the highest net gain (14 funds) and Japan the highest net loss (five funds). During the same period, the U.K. had a net loss of three funds, while Switzerland had a net gain of three funds.
Among the top 300 funds, defined benefit (DB) fund assets continue to dominate at 63.5% of the total AuM; however, the share of DB fund assets has been declining modestly over the years, as defined contribution (DC) funds (23.8%), reserve funds (11.8%) and hybrid fund assets (0.9%) are slowly gaining traction.
DB pension funds dominate in North America and Asia Pacific where they represent 72.7% and 65.2%, respectively. In Europe, DB funds also account for the majority of assets (51%), whereas DC pension funds dominate in other regions, where only 17.9% of assets are in DB pension funds.
According to the research, the top 20 pension funds now constitute 41.0% of the total assets, slightly down from the prior year (41.8%) having grown 6.6% during the year compared with 8.9% for the top 300 funds; however, on a longer-term basis, the top 20 have a higher growth rate, with a compound annual growth rate (CAGR) for the past five years of 8.8% versus 8.5% for the top 300 funds. On average, the top 20 funds invested approximately 53.5% of their assets in equities, 27.9% in fixed-income securities, and 18.6% in alternatives and cash.
“We’re seeing asset allocation continue to respond to long-term structural shifts. While allocations to private markets declined compared with the previous year, we believe this was mostly caused by shorter-term inflationary and rate-hike fears. We expect private markets will continue to expand considerably in the investment space over the long term, reflecting a need for new primary investment to support new models of sustainable economic growth.
“Pension fund boards’ agendas have rightly become a guide to the complex strategic challenges facing global markets and economies. Reading the annual reports of the world’s very largest pension funds is also a lesson in potential solutions to these major challenges. The majority are concerned about growing market volatility and discussing further ways to boost the diversity of their investments, specifically in the context of global economic slowdown. And most are now campaigners for best practice in corporate governance, aimed at ensuring sustainable value.
“It’s clear that pensions can be a force for good to contribute to overcoming the substantial challenges in the world, but also a barometer of major questions we all face over the coming decades,” concluded Hall.
The Government Pension Investment Fund of Japan (GPIF) remains the very largest pension fund, leading the table with AuM of over $1.7 trillion. It has ranked top since 2002.
Top 20 pension funds (US$ millions)
|1||Government Pension Investment||Japan||1,730.900|
|2||Government Pension Fund||Norway||1,437.111|
|3||National Pension||South Korea||797.968|
|4||Federal Retirement Thrift||U.S.||774.176|
|6||California Public Employees||U.S.||496.820|
|8||National Social Security||China||406.7872|
|9||Central Provident Fund||Singapore||374.990|
|11||California State Teachers||U.S.||313.940|
|12||New York State Common||U.S.||267.756|
|13||New York City Retirement||U.S.||266.702|
|14||Local Government Officials||Japan||248.572|
|15||Employees Provident Fund||Malaysia||242.602|
|16||Florida State Board||U.S.||213.792|
|19||National Wealth Fund||Russia||180.6903|
1 As of March 31, 2022
3 As of January 1, 2022
4 As of June 30, 2021