World’s largest pension funds reach new US$23.6 trillion record
GLOBAL, 05 September 2022 – Assets under management (AUM) at the world’s top 300 pension funds increased by 8.9% to reach a new record, now totalling US$23.6 trillion in 2021, according to the annual research conducted by the Thinking Ahead Institute, in conjunction with Pensions & Investments, a leading U.S. investment newspaper. The research highlights high-level trends in the pension fund industry and provides information on the changing characteristics of these funds.
While total AUM has reached record highs, growth has slowed from 11.5% in 2020 to 8.9% in 2021. This was to be expected after a very strong performance in asset markets over 2020. However, the latest performance is enough to take five-year cumulative growth to 50.2% in the period between 2016-2021.
Marisa Hall, co-head of the Thinking Ahead Institute, reflects on key insights from the research: “This is a story of two halves. On the one hand, a new record for the world’s major pension funds illustrates the optimism that defied a global pandemic. Yet on the other, growth is slowing and the long-term dashboard is flashing amber.
“Looking ahead, rising inflation and subsequent central bank action are likely to cause global growth to falter, which may in turn endanger longer term the funding status of pension funds.
“Pension funds are also under immense governance pressure from all sides, with a growing politicisation of ESG in some regions meeting calls for more substantial and urgent climate action. The addition of stark short-term economic pressures alongside these structural long-term changes will only add to the difficulty of balancing short-term financial resilience with long-term financial and climate sustainability.”
North America now accounts for 45.6% of assets of the world’s 300 largest pension funds. This is up from 41.7% at the end of 2020. European pension funds account for 25.9% and Asia-Pacific 25.5%, with the remaining 4% from Latin America and Africa.
North America’s increased global share was largely powered by the fastest annualised growth in invested assets, up 9.2%, followed by Europe (+8.3%) and Asia-Pacific (+8.0%) and Latin America and Africa (+3.9%) during the same period.
The United States (US) now accounts for 39.6% of top 300 pension fund AUM and has almost half the funds in the ranking, with 148. After the US, the countries with the largest number of pension funds in the ranking are the United Kingdom (UK) (23), Canada (18), Australia (15), the Netherlands (12) and Japan (11). Since 2016, a total of 37 new funds have entered the ranking, with the US accounting for the highest net gain (14 funds) and Japan the highest net loss (5 funds). During the same period, the UK had a net loss of three funds, while Switzerland had a net gain of three funds.
Among the top 300 funds, Defined Benefit (DB) fund assets continue to dominate at 63.5% of the total AUM. However, the share of DB fund assets has been declining modestly over the years, as Defined Contribution (DC) funds (23.8%), reserve funds (11.8%) and hybrid fund assets (0.9%) are slowly gaining traction.
DB pension funds dominate in North America and Asia-Pacific where they represent 72.7% and 65.2% respectively. In Europe, DB funds also account for the majority of assets (51%), whereas DC pension funds dominate in other regions, where only 17.9% of assets are in DB pension funds.
According to the research, the top 20 pension funds now constitute 41.0% of the total assets, slightly down from the prior year (41.8%) having grown 6.6% during the year compared to 8.9% for the top 300 funds. However, on a longer-term basis, the top 20 have a higher growth rate, with a Compound Annual Growth Rate (CAGR) for the last five years of 8.8% versus 8.5% for the top 300 funds. On average, the top 20 funds invested approximately 53.5% of their assets in equities, 27.9% in fixed income securities and 18.6% in alternatives and cash.
Marisa Hall concludes: “We’re seeing asset allocation continue to respond to long-term structural shifts. While allocations to private markets declined compared to the previous year, we believe this was mostly caused by shorter-term inflationary and rate-hike fears. We expect private markets will continue to expand considerably in the investment space over the long term, reflecting a need for new primary investment to support new models of sustainable economic growth.
“Pension fund boards’ agendas have rightly become a guide to the complex strategic challenges facing global markets and economies. Reading the annual reports of the world’s very largest pension funds is also a lesson in potential solutions to these major challenges. The majority are concerned about growing market volatility and discussing further ways to boost the diversity of their investments, specifically in the context of global economic slowdown. And most are now campaigners for best practice in corporate governance, aimed at ensuring sustainable value.
“It’s clear that pensions can be a force for good to contribute to overcoming the substantial challenges in the world, but also a barometer of major questions we all face over the coming decades.”
The Government Pension Investment Fund of Japan (GPIF) remains the very largest pension fund, leading the table with AUM of over US$ 1.7 trillion. It has ranked top since 2002.
Top 20 pension funds (US$ millions)
RankFundMarketTotal Assets1Government Pension InvestmentJapan1,730.9002Government Pension FundNorway1,437.1113National PensionSouth Korea797.9684Federal Retirement ThriftU.S.774.1765ABPNetherlands630.3586California Public EmployeesU.S.496.8207Canada PensionCanada426.74618National Social SecurityChina406.78729Central Provident FundSingapore374.99010PFZWNetherlands315.46711California State TeachersU.S.313.94012New York State CommonU.S.267.75613New York City RetirementU.S.266.70214Local Government OfficialsJapan248.57215Employees Provident FundMalaysia242.60216Florida State BoardU.S.213.79217Texas TeachersU.S.196.72718Ontario TeachersCanada191.14019National Wealth FundRussia180.690320AustralianSuperAustralia169.0554
As of 31 March 2022
Estimate
As of 1 Jan 2022
As of 30 June 2021
About the Thinking Ahead Institute
The Thinking Ahead Institute was established in January 2015 and is a global not-for-profit investment research and innovation member group made up of institutional asset owners and asset managers committed to mobilising capital for a sustainable future. It has over 55 members around the world, with combined responsibility for over US$16 trillion, and is an outgrowth of WTW Investments’ Thinking Ahead Group – set up in 2002.
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