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AUM of top 20 pension funds declines for first time in seven years

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Assets under management (AUM) at the world’s 300 largest pension funds fell in value by 0.4 per cent to a total of USD18 trillion in 2018, in sharp contrast to an increase of 15.1 per cent in 2017, according to the latest World 300 research from the Thinking Ahead Institute.

The research, conducted in conjunction with Pensions & Investments, a leading US investment newspaper, shows that the value of the top 20 pension funds’ AUM fell by 1.6 per cent in 2018, equating to 40.7 per cent of the total AUM in the rankings. This is the first year since 2012 that the top 20 funds’ share of the total AUM has fallen. However, the top 20 funds’ growth rate of 4.7 per cent during the period 2013 to 2018 remained higher than the growth rate of 3.9 per cent for the top 300 funds during the same period.

Bob Collie, Head of Research for the Thinking Ahead Group, says: “A tougher market environment in 2018 meant AUM growth paused, but the underlying trend remains one of growing pension markets worldwide. The pace of change in the investment world is a challenge, and scale is a huge advantage in a lot of ways. Many of the most interesting and important developments start with the largest funds, and as new investment ideas like the total portfolio approach and universal ownership gain traction in these organisations, they influence the whole market. It’s particularly notable that a majority of the largest funds are now highlighting the importance of sustainability. ESG factors are now significant financial considerations. Beyond that, there’s also an evolving recognition of the role large investors play within society, and the responsibility that comes with it.”

Among the top 300 funds, defined contribution (DC) assets increased by 5.1 per cent during 2018, while defined benefit (DB) assets declined by 0.2 per cent. DB funds account for 64.7 per cent of the total AUM, with this share remaining unchanged from the previous year. However, the share of DB funds slightly decreased across all regions – with the exception of Europe where the same level was maintained. DB plans dominate in Europe, North America and Asia-Pacific where they represent 53.7 per cent, 74.2 per cent and 65.1 per cent by assets respectively, whereas DC plans dominate 70 per cent of assets elsewhere, particularly in Latin American countries.

The share of reserve funds (those set aside by a national government against future liabilities) decreased by 9.5 per cent, whilst hybrid fund assets (those with both DB and DC components) decreased by 4.6 per cent.

Sovereign and public sector pension funds account for 68.5 per cent of the total AUM in the ranking, with 145 funds in the top 300. Sovereign pension funds represent USD5.1 trillion in assets, while sovereign wealth funds account for USD7.9 trillion.

North America remains the largest region in terms of AUM and number of funds, accounting for 45.2 per cent of all assets in the research, followed by Asia-Pacific (26.2 per cent) and Europe (24.9 per cent). Asia-Pacific’s AUM and fund share has declined after several years of expansion, while Europe’s share has fallen to the lowest value in five years. During the same period, African and Latin American funds’ AUM increased by 0.7 per cent. North America had the fastest annualised growth rate during the period 2013 to 2018 at 5.8 per cent, while Europe and Asia-Pacific had annualised growth rates of 0.5 per cent and 5.2 per cent respectively.

A total of 26 new funds entered the top 300 in the last five years, with the US contributing the greatest net number of new funds (15). In contrast, Germany experienced the highest net loss of funds during the same period (6). The US continues to have the largest number of funds in the top 300 ranking (141), followed by the UK (24), Canada (17), Australia (16) and Japan (15).

On a weighted average for the top 20, assets are predominantly invested in equities (44.5 per cent) followed by fixed income (37.2 per cent) and alternatives and cash (18.3 per cent). Regarding weighted average allocations by region, Asia-Pacific funds are predominantly invested in fixed income (53.8 per cent), while North American funds are largely invested in equities (46.7 per cent). European funds have demonstrated a more balanced allocation between equities and fixed income, at 49.1 per cent and 36.2 per cent respectively.

Denmark’s ATP re-entered the top 20 funds, having dropped out a year ago, and South Africa’s GEPF fell out of the top 20 to 21st place in the ranking.

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