Emerging Markets Spur Global Pension Growth

AUM for world’s largest pensions rise more than 15% in 2017.

The world’s largest pension funds saw their assets under management surge 15.1% in 2017 to reach $18.1 trillion, more than doubling the growth rate of 6.1% for 2016, according to a report from Willis Towers Watson.

Emerging markets helped spur the growth, according to the report, and have become more prominent in the rankings in recent years with four new entrants from emerging market countries entering the top 20 pension funds over the last 10 years, including three from Asia, and one from Africa.

“The increased number of the largest funds originating from emerging market regions is reflective of a longer-term trend, with a great deal of progress being made in terms of governance structures and resiliency,” Roger Urwin, Willis Towers Watson’s global head of investment content, said in a release. “These countries are especially interesting to monitor as they are typically in the earlier stages of maturity and can continue to adapt and develop their investment models.”

China and India led all countries with reported annualized growth of 20.8% and 14.5%, respectively, in US dollar terms between 2012 and 2017.

The report also found that defined contribution assets increased 17.6% during 2017, while defined benefit assets grew 13.5%. Defined benefit assets accounted for 64.7% of the disclosed total assets under management, down from 65.5% in 2016.

The share of reserve funds set aside by a national government against future liabilities were 11.8%, up from 11.5% in 2016, while hybrid funds with both defined benefit and defined contribution components accounted for less than 1% of the total.

Despite the strong growth from emerging markets, North America remained the largest region in terms of assets under management, accounting for 42.3% of all assets, followed by Asia-Pacific (27.3%), and Europe (26.5%). North America also had the fastest annualized growth during the period 2012 through 2017 at 6.2%, just ahead of Asia-Pacific’s 6.1%, and well ahead of Europe’s 3.8%.

A total of 26 new funds entered the top 300 over the last five years, with the US contributing the greatest net number of new funds. The US also still has the largest number of funds within the top 300 ranking at 133, with the UK a distant second with 25, followed by Canada with 18, and Japan and Australia, each of which accounted for 17 new funds in the top 300.

The report also found that for the top 20 funds, assets were mainly invested in equities (46.3%), followed by fixed income (36.1%), and alternatives and cash (17.6%). Meanwhile, on a regional basis, Asia Pacific funds had the largest allocation to fixed income (52.5%) and North American the largest allocation to alternatives (34.8%).

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