Pension fund assets reach US$46.7 trillion

Global institutional pension fund assets among the 22 largest markets bounced back in 2019 to climb by 15%, according to the Thinking Ahead Institute's Global Pension Assets Study

Global institutional pension fund assets among the 22 largest markets bounced back in 2019 to climb by 15%, reaching US$46.7 trillion.

Over the last decade, pension fund assets have grown the fastest in Asia and the US - with South Korea's assets up 12.4%, Hong Kong 9.2% and the US 7.8%

Over the last decade, the fastest growing pension markets in the world have been in Asia and the US - with South Korea's assets up 12.4%, Hong Kong 9.2% and the US 7.8%.

These latest figures are according to the Thinking Ahead Institute's Global Pension Assets Study.

Australia remains one of the largest pension markets in the world as part of the P7 (the seven largest markets for pension assets) with Canada, Japan, the Netherlands, Switzerland, the UK and the US.

The P7 accounts for 92% of the US$46.7 trillion in assets in the 22 largest pension markets.

The research shows a shift to alternative assets continuing globally, marking two decades of considerable change in pension fund asset allocation.

In 1999, just 6% of P7 pension fund assets were allocated to private markets and other alternatives, compared to 23% in 2019.

This shift comes largely at the expense of equities and bonds, down 16% and 1% respectively, in the period.

The average P7 asset allocation is now equities 45%, bonds 29%, alternatives 23% and cash 3%.

Thinking Ahead Institute co-head Marisa Hall explained that with this growth, the ways large pension funds function internally are also shifting.

Besides strong growth in assets last year, there was a noticeable pick-up in the decade-long trend of funds developing stronger strategies around their people, she said.

Larger funds, particularly those above US$25 billion, continued to build larger and more sophisticated internal teams, with stronger leadership through CEO and CIO roles and greater role specialisation in certain asset classes, such as private markets.

Smaller funds are continuing to outsource all or part of their CIO-type decisions and we expect this to continue, she said.

As for the Australian market, Willis Towers Watson head of strategic advisory Jessica Melville said the superannuation system has never been more important to the financial welfare of Australians.

Assets are now 151% of GDP. Large asset owners have the opportunity to shape the next 10 years and are increasingly rising to the challenge of ensuring that their assets are managed responsibly, she said.

In particular, the presence of natural disasters like bushfires has put sustainability in the spotlight.

Melville said she expects to see the allocation of capital grow in importance, especially with respect to climate change.

The funds that can integrate these issues into their beliefs framework, leverage tools to build portfolios that incorporate these dimensions of risk, and measure success through multiple lenses over an appropriately long horizon, will deliver the strongest outcomes to their members, she added.