Towers Watson Study Shows Global Pension Fund Assets Hit Record High in 2010

(February 7, 2011) — Research by Towers Watson has shown that global institutional pension fund assets in the 13 major markets increased by 12% during 2010 to reach a new high of $26 trillion.

The growth, according to the consultancy, reflects the continuation in the uptick in global pension fund assets which started in 2009 when assets grew 17%, following a severe drop the previous year when assets plummeted to 2006 levels.

“The global financial crisis is still with us and the ongoing aftershocks are a continual reminder that the nascent economic recovery is still very tenuous. While nervousness about the volatility of markets and extreme events is just below the surface, there is broad acceptance that this is the new normal and that investors will need investment strategies that are more flexible and adaptable than they have been in the past,” Carl Hess, global head of investment at Towers Watson, said in the report. “So while the recovery of the markets is to be welcomed, it should not distract from the major issues confronting the industry and the weaknesses in the system which governments and companies must face up to.”

Towers Watson global head of investment content Roger Urwin added “Notwithstanding the recovery in markets, asset allocation remains challenging as companies and trustees balance such priorities as long-term de-risking, short-term market opportunities, rebalancing or maintaining a strategic asset allocation mix. “These are complex decisions made more difficult in the context of highly changeable market conditions.”

According to the study by Towers Watson, pension assets now amount to 76% of the global GDP, substantially higher than the equivalent figure of 61% in 2008.

From a geographical perspective, the study also highlighted that on a relative basis, the UK has the highest exposure to equity of the seven largest markets, with Japan having the highest exposure to bonds. The Netherlands now has the largest proportion of pension assets to GDP (134%), followed by Switzerland (126%), US (104%), Australia (103%)and the UK (101%). In the past ten years, Canada, Ireland and France have seen the greatest fall in the ratio of pension assets to GDP of -19%, -3% and -1% respectively.

Additionally, the research found that the fastest growing pension market is Brazil, which has a ten-year compound annual growth rate in local currency of 15%. South Africa has grown at 13%, Hong Kong at 11% and Australia at 10%.