NZ had one of the fastest-growing pension fund markets in the world over the five years to the end of 2022, according to the latest Thinking Ahead Institute (TAI) survey of the global sector.
The result, which saw the country run sixth-fastest by growth over the five-year period in US dollar terms, was entirely due to the now $65 billion NZ Superannuation Fund (NZS) – the only Kiwi entrant in the TAI top 300 list.
Valued in US currency, the NZ pension fund market grew about 5 per cent annually from 2017 to 2022, or roughly 7 per cent in kiwi dollar terms, the TAI report shows.
NZ Super (US$34.6 billion at the end of last year) ranks almost exactly half-way in the global pension fund universe at 145th on the TAI table, which is top and tailed by the Japan Government Pension Investment Fund (US$1.4 trillion) and the Ohio School Employees fund (US$16.5 billion), respectively.
Australia boasts 16 funds in the TAI 300 including one in the top 20 – the US$176 billion AustraliaSuper (18th by size).
However, the TAI report – produced in association with trade publication, Pensions & Investments – found the sector last year experienced the deepest slump ever recorded in the 20-year history of the survey.
“By the end of 2022, combined assets of the world’s top 300 pension funds decreased by 12.9%, now totalling US$ 20.6 trillion compared to US$ 23.6 trillion at the end of 2021. This represents a sharp correction compared to an 8.9% increase in the assets of the largest 300 pension funds in the previous year,” a TAI release says. “The latest drop is also faster than a 12.6% annual fall in 2008, at the time of the global financial crisis. Until now, the 2008 fall had been the fastest annual decline recorded in the 20 years of the study.”
Jessica Gao, TAI director, said in the statement that even though markets have improved through 2023, the pension fund sector continues to face challenges on several fronts.
“Pension schemes are operating in a new environment, where conditions are changing faster and faster each day,” Gao said.
“Asset owners are increasingly influenced by technological advancements and the rise of artificial intelligence. Balancing the need to catch up with asset managers’ AI-driven insights while retaining control over their investment mandates underscores the critical role of effective collaboration and strategic adaptation for [asset owners] in an investment ecosystem with increasingly influential technologies.”
In addition to the AI and technology assault, pension funds must also deal with increasing concerns over sustainability (and systemic climate risk etc) as well an “all change” backdrop featuring market volatility and government interference.
The report notes many governments are wielding more influence over fund investment strategies, name-checking the recently introduced Australian ‘Your Future, Your Super’ reforms applying perform-or-go tests across the superannuation sector.
“Operating in this ‘all change’ environment requires strong governance which is crucial for pension funds to maintain long-term stability in the face of increasingly complex stakeholder management and to ensure robust risk management practices and informed decision-making amidst uncertainty,” the study says.
TAI emerged as a not-for-profit ‘research and innovation group’ out of global consultancy and insurance broker Towers Watson, now known as WTW (for Willis Towers Watson).