In 22 major markets, global institutional pension fund assets in defined contribution (DC) and defined benefit (DB) plans grew by 4.3% in 2016, and have grown by 3.8% per year over the past five years, according to a new study by the global advisory firm Willis Towers Watson. The assets grew to $36.4 trillion in 2016 and total pension assets amount to 62% of their countries’ GDP. China showed the highest growth rate at 20.3%, where the study covers the enterprise annuity market, and Japan, at –5.4%– was the lowest.
DC assets, growing at a rate of 5.6% over the past decade, continued to outstrip that of DB assets, which grew by 2.6%. DC assets now account for more than 48% of global pension assets, rising 7% since 2006, according to the study.
“Pension funds worldwide made some progress against their headwinds in 2016,” Steve Carlson, head of Investment, North America, at Willis Towers Watson, said in a statement. “This was largely because equity markets and alternative asset classes produced gains ahead of expectations. While funds in many countries have large pension outflows to deal with, it was encouraging to see overall asset values rise in the vast majority of countries covered in the study.”
The study noted an increase in allocations to alternative assets and a global trend with a decline in allocations to equities and bonds. The weight of domestic equities fell on average to 43% in 2016 from 69% in 1998. The US had the largest market in terms of pension assets, and the highest exposure to domestic equities, while Canada, Switzerland and the U.K. had the lowest, according to the study.
The US, UK and Japan, respectively, are the three largest markets, accounting for more than 77% of total assets.
Of the 22 markets, the Netherlands grew its pension assets the most in proportion to GDP over 10 years. In the past decade, out of Australia, Canada, Japan, Netherlands, Switzerland, UK and US, the countries that increased allocations to bonds most were The Netherlands (44% to 54%), the UK (24% to 36%) and Japan (46% to 59%), according to the study.
The study also found currencies that experienced the largest depreciation against the USD in 2016 were the Great British Pound (-17.0%), the Mexican Peso (-16.4%), the Chinese Yuan (-6.6%), the Malaysian Ringgit (-4.2%) and the Euro (-3.6%).
Estimates at year-end 2016 were based on index movements, and before 2006, researchers focused only on ‘institutional pension fund assets’, primarily occupational pensions. After 2006, the analysis was widened to incorporate DC assets (IRAs) within US’s total pension assets. Due to unavailability of pension data in China, the study collected information on Enterprise Annuity assets only.
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