Global pension funds ended a three-year winning streak during the 2018 calendar year with assets under management (AUM) going backwards for the first time since 2015.
According to the Thinking Ahead Institute (TAI) annual survey of the world’s 300 largest pension funds, total AUM slid by 0.4 per cent over the year compared to a 15.1 per cent gain in 2017.
And it was the larger funds hurting the most, the study found, as the top 20 group gave up 1.6 per cent in value over the 12-month period.
“This is the first year since 2012 that the top 20 funds’ share of the total AUM has fallen,” TAI says. “However, the top 20 funds’ growth rate of 4.7% during the period 2013 to 2018 remained higher than the growth rate of 3.9% for the top 300 funds during the same period.”
Over the last five years total AUM in the top 300 funds has increased by more than 21 per cent.
Despite the minor hiccup, AUM of the TAI top 300 pension funds, which includes the NZ Superannuation Fund (NZS), stayed just above the US$18 trillion mark breached for the first time in 2017.
The TAI is part of the Thinking Ahead Group, a research body established by Willis Towers Watson.
In a release, Bob Collie, Thinking Ahead Group head of research, said: “A tougher market environment in 2018 meant AUM growth paused, but the underlying trend remains one of growing pension markets worldwide.”
Markets slumped over the December 2018 quarter but have since recovered most of those losses – albeit in an environment of rising volatility.
“On a weighted average for the top 20, assets are predominantly invested in equities (44.5%) followed by fixed income (37.2%) and alternatives and cash (18.3%),” the TAI release says.
By contrast, NZS currently invests about 80 per cent of its roughly $42 billion in equities.
NZS is the only NZ entry in the TAI top 300, sandwiched at 189 on the list between the Caterpillar fund and a New York State scheme. Almost half of the funds are US-based followed by the UK (24), Canada (17), Australia (16) and Japan (15).
Collie said the larger funds among the top 300 are typically the most innovative.
“The pace of change in the investment world is a challenge, and scale is a huge advantage in a lot of ways,” he 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.”
Larger funds are increasingly concerned with environmental, social and governance (ESG) factors, sustainability and the broader social responsibilities that comes significant asset ownership, Collie said.
At almost US$1.4 trillion under management, the Japanese Government Pension Fund tops the TAI list while the smallest – the Los Angeles Water and Power scheme – holds about US$14.7 billion.
Over the last five years 26 new funds have made it to the top 300, of which 15 are US-based. Meanwhile, six German pension funds fell out of the elite group during the same period – the most of any country.
The Danish ATP government pension scheme returned to the top 20 in 2018 after dropping out last year – replacing South Africa’s GEPF.
ATP recorded one of its best investment results in the six months to June 30 this year, Bloomberg reported last week.
The ATP fund was up about 32 per cent for the six-month period, attributing much of the performance to its substantial holdings of government and mortgage bonds that represented about a third of the US$230 billion portfolio.
However, Bo Foged, ATP chief, said risks were gathering.
“It is incontestable that when one looks ahead, running a pension fund or a bank in a world where there is zero, or negative rates, it is difficult,” Foged said. “It’s going to be harder to earn money in the future. That’s why I say: we’ve gotten returns in advance.”