Global pensions’ AUM hit record high in 2013, says Towers Watson

06 February 2014   Category: News, Asia, Global, USA, Europe   By Asia Asset Management

Global institutional pension fund assets in 13 major markets grew by 9.5% last year to reach an all-time high of almost US$32 trillion, according to Towers Watson’s Global Pension Assets Study.

The report stated that the growth is a continuation of a trend started in 2009 when assets grew 18%, and in sharp contrast to a 22% fall during 2008 when assets fell to around US$20 trillion. Global pension fund assets have now grown at over 6.7% on average per annum (in USD) since 2003.

The findings revealed that the growth in assets helped to strengthen pension fund balance sheets globally during 2013. Furthermore, the ratio of global assets to global GDP is at its highest level since the research began in 1995. According to the study, pension assets now amount to around 83% of global GDP, a large rise from the 76% recorded in 2012 and substantially higher than the 57% recorded in 2008.

Naomi Denning, managing director, investment services for Asia Pacific at Towers Watson, said: “During 2013 equities enjoyed their best calendar year of risk-adjusted returns since the financial crisis and as a result, pension funds in most markets are in the best shape that they have been for many years. The global economic recovery continued to gain momentum throughout 2013, thanks to the absence of major negative events and a stream of positive economic news.

“After such a long period of financial retrenchment and uncertainty, this is genuinely encouraging. Generally, pension funds are now implementing investment strategies that are more flexible and adaptable, and which contain a broader view of risk, making greater allowance for the sort of extreme economic and market volatility they have experienced during the past five years because the global economic recovery – and the implied normalisation of market conditions - is by no means guaranteed.”

The research study showed that among the largest pension markets there is a clear sign of reduced home bias in equities investing, with the average weight of domestic equities in pension fund portfolios falling from around 65% in 1998 to just over 44% in 2013.

Regarding home bias in fixed income investment, the average allocation to domestic bonds as a percentage of total bonds has remained high since the inception of this research when it was over 88%; last year it was around 80%.

Ms. Denning said: “Pension funds in many developing Asian markets are still conservative about investing beyond their home markets. In recent years we saw a loosening of regulatory restrictions in a few Asian markets, enabling greater allocation to foreign investments. In some parts, the motivation here is to reduce concentration risk within home markets, a desire to enhance returns or yield, as well as greater portfolio diversity. Some Asian markets will require more time to get comfortable with higher overseas exposure. Towers Watson expects the appetite and demand for diversifying away from home bias and/or traditional assets to increase over time.”