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Emerging market pension funds grow in prominence on the world stage

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Assets under management (AUM) at the world’s largest pension funds increased in value by 15.1 per cent in 2017 to reach a total of USD18.1 trillion, a significant increase from the 6.1 per cent growth achieved in 2016, according to the latest global 300 research from Willis Towers Watson’s Thinking Ahead Institute.

The research shows the top 20 funds account for 41.1 per cent of the AUM in the ranking, marking a slight increase from 40.3 per cent in the previous year.
 
Emerging markets have become more prominent in the rankings in recent years, with the Employees’ Provident Fund (India) a new entrant into the top 20 in 2017. A total of four new entrants from emerging market countries have entered the top 20 over the last ten years, from Asia (3) and Africa (1).
 
Roger Urwin (pictured), global head of investment content at Willis Towers Watson, says: “The increased number of the largest funds originating from emerging market regions is reflective of a longer-term trend, with a great deal of progress being made in terms of governance structures and resiliency. These countries are especially interesting to monitor as they are typically in the earlier stages of maturity and can continue to adapt and develop their investment models.”
 
Bob Collie, head of research for the Thinking Ahead Group, adds: “This is a period of extraordinary change for large pension plans, driven by a confluence of factors. It’s not just demographic change and the changing global economic balance; it’s not just changes in social expectations, politics, sustainability, or regulation; it’s not just technology. It’s all of these, and it’s the way the changes compound one another. Many of these organisations are fairly young and have grown rapidly. This puts a spotlight on their governance and how they operate.”
 
Among the top 300 funds, defined contribution (DC) assets increased during 2017 by 17.6 per cent whilst defined benefit (DB) assets grew 13.5 per cent. DB assets accounted for 64.7 per cent of the disclosed total AUM, (down from 65.5 per cent in 2016).
 
The share of reserve funds (those set aside by a national government against future liabilities) saw a slight increase at 11.8 per cent (11.5 per cent in 2016), whilst hybrid funds (those with both DB and DC components) accounted for less than 1 per cent of the total.
 
“Whilst the longer-term shift from DB to DC is widely understood and remains unchanged, it is striking that DB assets continue to grow and form the majority of the total assets. We see the hybrid market as an interesting area of the landscape to watch, with its growth expected to continue as asset owners shift away from traditional DB strategies,” says Urwin.
 
Sovereign and public sector pension funds account for 68.6 per cent of the total assets, increasing by 0.2 per cent from 2016.
 
North American funds remain the largest region in terms of AUM, accounting for 42.3 per cent of all assets in the research, followed by Asia-Pacific (27.3 per cent) and Europe (26.5 per cent). North America shows the fastest annualised growth during the period 2012/17 at 6.2 per cent, slightly outpacing Asia-Pacific’s 6.1 per cent and Europe’s 3.8 per cent.
 
A total of 26 new funds entered the top 300 over the last five years, with the U.S. contributing the greatest net number of new funds (9). The US continues to have the largest number of funds within the top 300 ranking (133), followed by the UK (25), Canada (18), Japan and Australia (both 17).
 
On a weighted average for the top 20 funds, assets are predominantly invested in equities (46.3 per cent), followed by fixed income (36.1 per cent), and alternatives and cash (17.6 per cent). Looking at the allocations by region, APAC funds had the largest allocation to fixed income (52.5 per cent) and North American the largest allocation to alternatives (34.8 per cent).
 

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