Global pension assets reach record high of $28trn in 2011 – Towers Watson

UK - Assets at pension funds around the world reached a record high of $28trn (€21trn) in 2011, but growing liabilities weakened balance sheets, a study reveals.

Research by consultancy Towers Watson showed pension assets across the 13 countries surveyed were up 3.9% from the end of 2010.

Even though assets grew, pension fund balance sheets weakened internationally during the course of 2011, the study showed, with the ratio of global assets to liabilities well down from its peak seen in 1999.

Towers Watson said its asset/liability indicator lost 4.3% in 2011.

Chris Ford, EMEA head of investment at Towers Watson, said: “In case investors needed any reminding, the last six months of 2011 have driven home the need to have investment strategies that are flexible and adaptable and which contain a broader view of risk.

“This approach makes greater allowance for extreme events, which are occurring more frequently, while accommodating the softer elements of risk, such as credit and liquidity.”

In relative terms, global pension assets rose to 72.5% of GDP last year, but were still below the 2007 level of 78.9% and the 2010 level of 75.5%.

The US, Japan and the UK were shown to be the largest pension markets, with 58.5%, 12.2% and 8.7% of total pension assets in the study, respectively.

Asset growth in these markets was 5.9%, 2% and 5%, respectively, in US dollar terms.

Since 2001, global pension fund assets have grown at an average of more than 6% a year since 2001, in US dollar terms.

On asset allocation patterns, the study showed bond allocations had decreased by 3% aggregate during the last 16 years in the seven largest pension markets.

Equities allocations had dropped by 8% over the same period, though much of this fall happened in 2011, Towers Watson said.

Allocations to alternative assets - particularly property and hedge funds, private equity and commodities - have grown to 20% in 2011 from 5% in 1995.

Defined contribution assets now comprise 43% of global pension assets compared with 41% in 2005, and 38% in 2001.