Conservatism impedes behemoths

The largest 20 pension funds globally, which make up 39.2 per cent of the largest 300 funds, have underperformed the rest of the universe measured by the Towers Watson/Pensions & Investments survey for the first time. 

Performance of the top 20 pension funds (listed below) was 2 per cent lower than the overall ranking, with the world’s largest 300 pension funds increasing their value by 8.2 per cent last year, after declining by 12.6 per cent in 2008.

The lower return is due, in part, to the conservative nature of the investments of the Government Pension Investment Fund of Japan, which at $1.3 trillion is the world’s largest fund, three times larger than the second largest fund, the Government Pension Fund Norway.

Within the top 20, the Canadian Pension Plan was the outstanding performer, with a 41 per cent gain in assets.

Two new funds entered the top 20 this year: the Chinese National Social Security fund and the South African GEPF.

Within the overall top 300, which have combined assets of $11.3 trillion, the US has the largest market share of pension fund assets, accounting for 36 per cent, but this has fallen from 54 per cent in 2002.

This is followed by Japan (18 per cent), UK (6 per cent), Netherlands (6 per cent) and Canada (5 per cent).

Since 2004, the US and UK combined have had a net loss of 30 funds from the ranking, while Australia, Mexico and Finland have added 11, four, and four funds respectively.

The research shows that the Brazilian funds grew by the fastest rate during the five-year period to 2009 (24 per cent in $US terms), followed by Australia with 16 per cent.

Global head of investment at Towers Watson, Carl Hess (pictured), said the world’s largest pension funds are slowly emerging from the economic crisis, but there will be a period of increased volatility and unpredictable growth.

“This will lead to a continuation of the cycle of uncertainty which top funds will only break by prioritising governance and risk management arrangements, enabling them to be more nimble and competitive.”

According to the research defined benefit funds accounted for 71 per cent of assets, but this is down from 75 per cent 2008st year DB assets grew by only 4 per cent, compared to a 24 per cent asset value growth of defined contribution, reserve funds and hybrids.

Another trend is the increasing influence of sovereign wealth funds, with 26 SWFs now featuring in the top 300, accounting for28 per cent of assets.

Towers Watson/Pensions & Investments top 20 pension funds 2009