The 2019 World 300, prepared by Willis Towers Watson’s Thinking Ahead Institute, is an annual study ranking and examining the 300 largest pension funds in the world, which this year included 16 Australian super funds in the mix.
The research found assets under management (AUM) of the world’s largest pension funds totalled at US$18 trillion ($26.7 trillion) in 2018, slipping by 0.4 per cent compared to an increase of 15.1 per cent the previous year.
The top 300 funds represented 44.9 per cent of total global pension assets, up from 43.6 per cent the year before.
The APAC region saw its funds’ share out of the total 300 funds’ AUM decline from 44.3 per cent the year before to 43 per cent in 2018.
Aus funds slip: industry funds escape worst damage
Only two out of the 16 Australian funds rose in their ranks, with Sunsuper, managing US$40.3 billion ($60 billion), climbing to 106th from 116th, while HOSTPLUS, holding US$25.6 billion ($38.1 billion), ascended to 186th from 195th.
Australia also had one less super fund in the list this year, with Telstra Super dropping out of the top 300.
Martin Goss, director of investments for Willis Towers Watson said the move in ranking of Australian funds in the survey reflected a significant decrease in the Australian dollar during the period, with it falling 10 per cent relative to the US currency.
“This, above all factors, is the primary reason that saw 14 out of the 16 Australian funds included in the global 300 drop in ranking this year,” he said.
“Having said that, when we look at the funds’ performance in Australian dollar terms, 14 funds actually grew their assets under management.”
Future Fund was recorded as the Aussie fund with the greatest total AUM at US$103.6 billion ($154.2 billion), ranking 29th globally, falling from its prior place of 26th on the list. AustralianSuper followed at number 33 in the ranks, with US$99.9 billion ($148.7 billion) in AUM, down one place from its previous 32nd.
There was a significant disparity between the industry and government-related funds in the report, Mr Goss added.
“When you look at the movement in ranking among the industry funds, on average, they experienced the least fallback, moving on average two places lower; for government related (including the Future Fund), the average drop was 16 places,” he said.
“I believe it’s because the government-related funds in the survey are in a more mature phase and they don’t have the same net cash inflow as the industry funds. Industry funds are still in a growth phase and seeing the benefits of ongoing consolidation – even if the rate of consolidation in 2018 was slower than in previous years.”
The research noted a slowdown in the rate of mergers among Australian funds last year, which contributed to new funds entering the list.
As most Australian funds have significant exposures to growth equities, Willis Towers Watson noted, other impacts were felt through low equity returns and continued low interest rates. Interest in rates by the US Federal Reserve were said to appear to have not had much of a flow on effect.
Changing global market
The value of the top 20 global funds declined for the first time in seven years, falling by 1.6 per cent, and equating to 40.7 per cent of total AUM in the top 300, down from 41.1 per cent in 2017.
Nine out of the top 20 funds pointed out geopolitical tensions as an important element and eight of the funds referred to trade barriers as a significant element surrounding the uncertain conditions.
Bob Collie, head of research for the Thinking Ahead Group said AUM growth paused due to a tougher market, but the underlying trend for pension funds remains one of growth.
“The pace of change in the investment world is a challenge, and scale is a huge advantage in a lot of ways,” Mr Collie said.
“Many of the most interesting and important developments start with the largest funds, and as new investment ideas like the total portfolio approach and universal ownership gain traction in these organisations, they influence the whole market.
“It’s particularly notable that a majority of the largest funds are now highlighting the importance of sustainability. ESG factors are now significant financial considerations. Beyond that, there’s also an evolving recognition of the role large investors play within society and the responsibility that comes with it.”
Sovereign and public sector pension funds account for 68.5 per cent of the total AUM in the ranking, with 145 funds in the top 300. Sovereign pension funds represent US$5.1 trillion in assets, while sovereign wealth funds account for US$7.9 trillion.
North America remains the largest region in terms of AUM, accounting for 45.2 per cent of all assets in the research. The US was the country with the largest number funds in the list, with 141 funds, followed by the UK (24), Canada (17) and Australia.
Europe and Asia-Pacific AUM represent 24.9 per cent and 26.2 per cent respectively.
