Global institutional pension fund assets in 13 major markets—including Canada—grew by 9.5% in 2013 to reach a new high of almost US$32 trillion ($35.5 billion), according to Towers Watson’s Global Pension Assets Study.
“During 2013, equities enjoyed their best calendar year of risk-adjusted return since the financial crisis, and, as a result, pension funds in most markets are in the best shape they have been for many years,” says Carl Hess, the company’s global head of investment.
He adds that the global economic recovery continued to gain momentum throughout 2013, thanks to the absence of major negative events and a stream of positive economic news and after such a long period of financial retrenchment and uncertainty, this is all genuinely encouraging.
“Generally, pension funds are now implementing investment strategies that are more flexible and adaptable and which contain a broader view of risk so as to make greater allowance for the sort of extreme economic and market volatility they have experienced during the past five years,” Hess explains.
Global pension fund assets have now grown at over 6.7% on average per annum (in U.S. dollars) since 2003.
In terms of assets, equity allocations in the Netherlands fell from 40% in 2003 to 35% in 2013, and Canada’s allocation to equities fell from 55% to 48%. Equity allocations by Japanese pension funds have risen from 22% to 40%, while equity allocations by U.K. pension funds have fallen from 65% to 50% in the same period. American and Australian pension funds have maintained the highest allocation to equities over time, reaching 57% and 54% in 2013, respectively.
In the past decade most countries have increased their exposure to alternative assets with Australia increasing them the most (from 8% to 25%), followed by Canada (8% to 21%) and the U.K. (from 3% to 14%).
The report also notes the following:
- DC pension assets have grown from 38% in 2003 to 47% in 2013.
- Australia has the highest proportion of DC to DB pension assets: 84% to 16% compared with 83% to 17% in 2012. Only Australia and the U.S. have a larger proportion of DC assets than DB assets.
- Japan, Canada and the Netherlands are markets dominated by DB pensions with 97%, 96% and 95% of assets respectively invested in these types of pensions. Historically only DB, these markets are now showing small signs of a shift toward DC.
The 13 largest pension markets included in the study are Australia, Canada, Brazil, France, Germany, Hong Kong, Ireland, Japan, Netherlands, South Africa, Switzerland, the U.K. and the U.S. Those countries combined account for more than 85% of global pension assets.
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