The 300 largest pension funds in the world together had 21,700 billion US dollars under management in 2020. An increase of 11.5 percent, according to a study by Willis Towers Watson, in cooperation with the American platform Pensions & Investments. Prevailing trend: becoming more complex, but above all more holistic.
Generations in one boat
Pension fund boards are increasingly focused on managing many of the adverse developments resulting from a “new normal” of lower interest rates for longer periods of time. This has raised concerns about solvency and led some pension funds to increasingly stretch their risk budgets to meet return targets.
In addition, rising ESG expectations have created their own set of challenges and opportunities, said Marisa Hall, co-head of the Thinking Ahead Institute, which conducts annual research on global trends in the pension fund industry.
According to Hall, the agenda of pension funds is becoming increasingly complex. “Low interest rates, for example, have made solvency an increasingly important issue and parties are stretching their risk budgets to meet their return targets. In addition, expectations and demands on ESG have created new challenges and opportunities. ”
Hall argued that a more holistic view is emerging, as requirements for carbon emissions rise, as does the impact one has or wants to have on the real world. This is leading to more dynamic investment models such as integrated portfolio thinking, Willis Towers Watson points out in its annual Thinking Ahead Institute survey.
In the assets under management of the 300 funds, Defined Benefit pension funds account for 63.4 percent of the total. At the same time, the percentage of DC funds is increasing. The 20 largest pension funds invest predominantly in equities (46.6 per cent), bonds (36.6 per cent) and alternatives and cash (17.1 per cent). The exposure to alternatives has increased sharply in recent years.
The three largest pension and sovereign wealth funds in the world are: Government Pension Investment from Japan with USD 1700 billion in assets, followed by the Norwegian government fund with USD 1300 billion and the National Pension in Japan with USD 765 billion. In fifth place is the Dutch ABP with 607 billion dollars.