A new report from the multinational’s Thinking Ahead Institute has recorded global institutional pension fund assets were up by 15 per cent in 2019, to US$46.7 trillion ($69.6 trillion). In contrast, there had been an overall 3.3 per cent decline the year before in assets.
The white paper rated Australia as the most successful pensions market, with its 20-year pension asset growth of 10.7 per cent per annum due to the dominance of super and government-mandated contributions.
Australia also had the highest ratio of pension assets to GDP at 151 per cent, second only to the Netherlands at 187 per cent. Switzerland followed at its pension assets being 146 per cent.
The Netherlands had grown its pension assets by 73 percentage points (pp), followed by Australia with 41 pp.
Jessica Melville, head of strategic advisory, investments for Willis Towers Watson said the super system in Australia has never been more important for its economic welfare.
“Large asset owners have the opportunity to shape the next 10 years and are increasingly rising to the challenge of ensuring that their assets are managed responsibly,” Ms Melville said.
“In particular, the presence of natural disasters like bushfire [has] put sustainability in the spotlight.
“We expect this to grow in importance, with a significant reallocation of capital likely over the next decade, especially with respects to climate change. The funds that can integrate these issues into their beliefs framework, leverage tools to build portfolios that incorporate these dimensions of risk, and measure success through multiple lenses over an appropriately long horizon, will deliver the strongest outcomes to their members.”
Australia ranked among the highest seven largest markets for pension assets (what Thinking Ahead Institute referred to as P7) – along with Canada, Japan, the Netherlands, Switzerland, the UK and the US. Their assets accounted for 92 per cent of the largest 22 markets, marginally higher than the previous year.
The US remained the largest market, representing 62 per cent of worldwide pension assets, followed by the UK and Japan with 7.4 per cent and 7.2 per cent respectively.
Australia came in at fourth at 4.4 per cent, with its total estimated assets for the year being US$2.07 trillion (around $3 trillion).
In the decade ending 2019, South Korea, Hong Kong and the US were seen to be the fastest growing pension markets in terms of total assets, with growth of 12.4 per cent, 9.2 per cent and 7.8 per cent respectively.
Thinking Ahead Institute also noted a continued rise in allocations to private markets and other alternatives, over bonds and equities, rising from 6 per cent to 23 per cent, during the last 20 years.
In 1999, the report said, there had been 6 per cent of P7 pension fund assets allocated to private markets and other alternatives.
Equities were down 16 per cent along with bonds, which took a 1 per cent decrease in the 20-year period.
But Australia and the US were said to have higher allocations to equities than the rest of the P7 markets. Australia in particular had average equity allocations of 50 per cent, bonds at 15 per cent, other, 22 per cent and cash, 13 per cent.
The average P7 asset allocation is now equities, 45 per cent; bonds, 29 per cent; alternatives, 23 per cent and cash, 3 per cent.
Marisa Hall, co-head of the Thinking Ahead Institute said besides there being strong growth in assets, there had been a noticeable uptick in a decade-long trend of funds developing stronger strategies around their staff
“Larger funds, particularly those above US$25 billion, continued to build larger and more sophisticated internal teams, with stronger leadership through CEO and CIO roles and greater role specialisation in certain asset classes, such as private markets,” Ms Hall said.
“Smaller funds are continuing to outsource all or part of their CIO-type decisions and we expect this to continue.”
Australia was also reported to have the highest proportion of defined contribution (DC) pension assets to defined benefits (DB), with 86 per cent of its total pension assets in DC funds.
DC pension assets grew globally from 31 per cent of total pension assets in 1999 to 50 per cent in 2019.
Last year, DC overtook DB assets for the first time, having grown faster for the past decade (8.4 per cent per annum in contrast to DB’s 4.8 per cent per annum). Thinking Ahead reported there had been increased member coverage and in some markets, higher contributions.
But Ms Hall said the challenge of member engagement, “critical for a stronger DC system”, remains an unresolved issue for many schemes.
“As such, we expect this to be an area of particular focus for leading DC organisations as the next generation of plans takes shape,” she said.
“Advances in technology are opening up new possibilities for customisation, changing the nature of member interactions and resetting member expectations. The future of DC is likely to be hyper-customised, with increased focus on individual participants, but many schemes need to improve their governance to fully embrace this.”
