Global pension assets rise 15% to $46.7 trillion

Global institutional pension fund assets in the 22 largest major markets — the so-called P22 — bounced back in 2019, soaring by 15% to $46.7 trillion at year end, according to the latest report from the Thinking Ahead Institute’s Global Pension Assets Study

“The growth recovery was driven, in part, by strong gains in equity markets during the year with Mexico (22.2%), Canada (18.9%) and the US (17.8%) leading the way,” said the report.

“This represents a significant swing in fortunes from 2018, which saw an overall 3.3% decline in global pension assets. 

“The seven largest markets for pension assets (the P7) – Australia, Canada, Japan, the Netherlands, Switzerland, the UK and the US – account for 92% of the P22, marginally higher than the previous year.

“The US also remains the largest pension market, representing 62% of worldwide pension assets, followed by the UK and Japan with 7.4% and 7.2% respectively.

“The research also shows the shift to alternative assets continues apace and marks two decades of considerable change in pension fund asset allocation globally.

“In 1999, just 6% of P7 pension fund assets were allocated to private markets and other alternatives, compared to nearly a quarter of assets (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%.”

Marisa Hall, Co-Head of the Thinking Ahead Institute, said: “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.

“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.”

According to the research, total defined contribution (DC) assets continue to grow, representing slightly over 50% of total P7 pension assets.

Last year DC exceeded defined benefit (DB) assets for the first time.

Hall said: “The DC market has retained its newly-found position as the larger of the two as DB assets grow at a far slower pace.

“But the challenge of member engagement, critical for a stronger DC system, remains an unresolved issue for many schemes.

“As such, we expect this to be an area of particular focus for leading DC organisations as the next generation of plans takes shape.

“Advances in technology are opening up new possibilities for customisation, changing the nature of member interactions and re-setting member expectations.

“The future of DC is likely to be hyper-customised, with increased focus on individual participants, but many schemes need to improve their governance to fully embrace this.”