Pensions add $4.8 trillion in 2017

Global pension assets grew by $4.8 trillion last year, at a rate of 13.1 per cent on the year before. It was the largest growth rate in the 20 years of the Global Pension Assets Study.

In the 2018 report, Willis Towers Watson’s Thinking Ahead Institute covers 22 pension markets (known as the P22) with combined assets of $41.4 trillion, about 50 per cent larger than a decade ago.

The fastest-growing markets, in US dollar terms, have been Hong Kong (8.1 per cent), Chile (6.3 per cent) and Australia (5.9 per cent).

The report shows the entire universe of asset owners’ holdings to be worth $131 trillion. This includes mutual funds (including exchange-traded funds), pension funds, sovereign wealth funds, endowments and foundations, and insurance funds; however, the study covers just pension assets.

The seven largest markets for pension assets – Australia, Canada, Japan, the Netherlands, Switzerland, the UK and the US – account for 91 per cent of the global total. The US is still by far the dominant market, with $25.4 trillion in assets, making up 61 per cent of the P22’s total.

The assets of the top 300 pension funds account for 43 per cent of the total, with the top 20 funds representing 17.4 per cent of total assets.

The study also reveals the continued growth of defined-contribution funds, with DC now accounting for nearly half of all pension assets (49 per cent), up from 33 per cent a decade ago.

In terms of asset allocation, the report shows that a 60 per cent global equities/40 per cent global bonds reference portfolio would have returned 16.4 per cent in 2017.

The average asset allocation of the P7 is equities (46 per cent), bonds (27 per cent), other (25 per cent) and cash (2 per cent). Australia, the UK and the US have higher weightings to equities than the other P7 countries, at 49 per cent, 47 per cent and 50 per cent, respectively.

In the last decade, the home bias in equities has been reduced. Across the P7, domestic equities as a portion of total equity allocations have fallen from 69.7 per cent in 1998 to 41.1 per cent in 2017, on average.

In the two decades of the study, the allocation to real estate, private equity and infrastructure has moved from 4 per cent to about 20 per cent, and defined contribution has grown by 7.5 per cent a year, compared with 4.9 per cent growth in defined benefit.

The report concludes that the biggest missed opportunity in that time has been in stewardship, with asset owners not taking advantage of their ability to influence corporations.

The P22 countries are: Australia, Brazil, Canada, Chile, China, Finland, France, Germany, Hong Kong, India, Ireland, Italy, Japan, Malaysia, Mexico, the Netherlands, South Africa, South Korea, Spain, Switzerland, the UK and the US.

Top five markets by size