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Total assets of the world’s largest 300 pension funds fell by 13 per cent in 2008 to USD10.4trn, down by around USD1.5trn from last year’s figure, according to Pensions & Investments and Watson Wyatt research.

The research shows that despite last year’s fall in assets, compound annual growth during the past five years is still around ten per cent. The region with the highest compound annual growth rate (during this period is Asia-Pacific (19 per cent) and the lowest is North America (four per cent), with Europe having a growth rate of 12 per cent.
 
Carl Hess, global head of investment consulting at Watson Wyatt, says: ‘The world’s largest pension funds were not exempt from the economic crisis and have been set back a number of years. While, over a five-year period, they still show impressive growth, results in aggregate during the last decade have been more volatile. So despite having fared better than many other funds, they will now be focusing even more on risk management and reassessing their governance arrangements to ensure investment returns are more secure in future.’
 
According to the research, the US remains the country with the largest share of pension fund assets accounting for 41 per cent, although this has been eroded from 53 per cent in 2003, due to a weak dollar and various significant developments around sovereign pension funds elsewhere.

Japan has the second-largest market share on 19 per cent (14 per cent in 2007), largely because of the Government Pension Investment Fund of Japan, which is still at the top of the ranking (a position it has held for the past six years), has assets of around USD1.3trn and maintains a conservative asset allocation.

The Netherlands, UK and Canada have the third, fourth and fifth largest market share of six per cent, five per cent and four per cent respectively. Since 2003, the US and UK combined have had a net loss of 32 funds from the ranking, while Australia has added 11 and Germany seven without any falling out of the ranking, making them the top gaining countries.
 
The research shows that continuing high asset growth during the past five years has pushed the Asia-Pacific region ahead of Europe (USD2.5trn) for the first time with assets of around USD3trn, while the US remains top with USD4.7trn. During the same period, the other countries in the research combined, almost doubled their assets to over USD300bn.  In 2008, Asia-Pacific was the only region to show any growth (11 per cent).
 
The research shows that assets held by Taiwanese funds grew at the fastest rate during the five-year period to the end of 2008, 14 per cent in USD terms, followed by Australia with 13 per cent. During the same period the top Danish, Japanese and Dutch funds grew at 12 per cent, ten per cent and nine per cent respectively, in USD terms.
 
In 2008, and in keeping with past trends, the top 20 funds performed better than the remaining funds, falling by only four per cent compared to a decline of 13 per cent by the rest of the funds. During the past five years, however, the top 20 funds have grown at 14 per cent compared to seven per cent for the remaining funds and amount to USD4.2trn, constituting over 40 per cent of global pension assets. 

Sovereign funds continue to feature strongly in the ranking with the 22 of them accounting for 27 per cent of assets and totalling USD2.8trn. When added to public sector funds the total is 136 which accounts for 68 per cent of assets in the research.
 
Hess says: ‘Large pension funds, notably the top sovereign funds, have been prioritising governance to build long-term investment frameworks and develop decision-making structures that take advantage of new investment ideas. They have also used their size to their advantage by ensuring their various activities add up to a value proposition for beneficiaries. Among other things, these leader funds continue to set the benchmark in most aspects of investment and provide an insight into how to match liabilities during unstable economic times.’