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SPECIAL REPORT: MEGAFUNDS

World’s largest funds see 6.1% growth; assets hit $15.7 trillion

Roger Urwin said assets are up, but liabilities remain a real concern.

The good times appear to have resumed in 2016 for the world's largest asset owners, with the latest survey by Pensions & Investments and Willis Towers Watson PLC showing assets of the 300 largest retirement funds growing 6.1% to $15.73 trillion.

Thanks in large part to strong gains in equity markets, the 20 largest funds in the world grew 7.1% to $6.35 trillion for the year ended Dec. 31, increasing their relative size to 40.3% of total assets.

The MSCI All Country World index was up 7.87% for the year, with the U.S. stock market showing particular strength. The Russell 3000 gained 12.74% in 2016, in sharp contrast to the MSCI Europe's loss of 0.4%.

The 2016 figures compare to a 3.4% decline in total assets for 2015 and a 2.2% drop among the top 20 asset owners that year. In 2015, the 20 largest funds accounted for 40% of total assets.

But behind strong investment gains is a less positive story when it comes to plan deficits — something the study does not address.

"Positive equity returns by and large have kept these funds doing well, but solvency has been under a lot of pressure," said Roger Urwin, global head of investment content at Willis Towers Watson in London. "The vast majority of pension funds are underfunded."

With the expectation that interest rates will increase, which comes with higher discount rates, Mr. Urwin said plans "will stage something ​of a recovery ... but it won't necessarily do enough to put them into a very solid state. I wouldn't expect most pension funds to be in a solid state in five years time."

Also weighing on plan executives' minds is longevity, according to excerpts from some of the top 20 funds' annual reports for 2016 and Mr. Urwin. Recent discussions regarding participants' longevity are that improvements in life expectancy have "hit something of a plateau, but on the other hand a lot of that improvement is just working its way through the underlying mathematics of pension plans," Mr. Urwin said.

Plan executives cited in the survey highlighted both positive markets and the challenges they are facing.

Nine of the top 20 pension funds in their annual reports emphasized increased volatility and uncertainty in global markets in 2016, referencing the U.K. vote to leave the European Union on June 23 and the election of U.S. President Donald Trump in November.

Eight funds highlighted that positive equity returns drove their results, with strong growth in the second half of 2016. However, eight funds also said returns had been affected by the continued low interest rates, and 13 said portfolio diversification is a key strategy for their investment performance.

Concerns over longevity and the impact of aging populations were highlighted by seven funds as potential threats for the sustainability of retirement plans.

Overall, Mr. Urwin said: "The 300 is reasonably stable, and tells a story about organizations that have, by and large, strong governance and are making their way more confidently, but into more headwinds than they've had before. (They are) all stronger than five years ago, but having to deal with more adverse conditions."

Bigger gains in North America

Growth rates differed across the globe. North America-based funds retained the lion's share of the top 300 assets, taking 44.1% of total assets in 2016, up from 43.6% in 2015. The region's funds recorded annualized growth of 6.7% over the five years to year-end 2016.

Asia-Pacific funds grew at an annualized 2.8% over the same five-year period, and increased their share of total assets to 26.1%, up from 25.1% a year earlier.

Europe, however, saw its share fall, to 26.1% from 27.6%. The region's asset growth rate was an annualized 3.1% for the five-year period.

Mr. Urwin also highlighted the growth of public and state funds in the top 300, which have grown at the expense of corporate plans in the past few years.

In 2016, public-sector plans accounted for 40%, or $6.3 trillion of total assets, up from 39% in 2015. Sovereign funds accounted for 28% of assets, flat for the year but rising in terms of value to $4.47 trillion from $4.2 trillion.

Corporate plans saw their share fall to 18% from 19%, although by value assets grew to $2.86 trillion from $2.77 trillion. The remaining 14% was private independent plans, which saw no growth though assets rose to $2.12 trillion from $2.01 trillion in 2015.

Equities still a force

The asset allocation of the 20 largest funds shows a higher allocation to equities and to alternatives and cash, at the expense of bonds. The simple average portfolio of the top 20 shows 41.7% were invested in equities vs. 40.8% in 2015. The bond allocation fell to 37.2% from 39% a year previous, while alternatives and cash took the remaining 21.1% of assets, up from 20.3% in 2015.

Using a weighted average of the allocations, both equities and alternatives again took higher exposures. The equity allocation was 44.2% in 2016, up from 43.3% in 2015, and the alternatives and cash allocation grew to 18.2% from 16.8%. The allocation to bonds fell to 37.6%, from 40%. Mr. Urwin said there will be areas in the world, however, where bond allocations will still be high due to the use of liability-driven investing programs.

Regarding the increased equities exposure, Mr. Urwin said it could be that some funds have allowed their allocations to "drift" a little, meaning deviations from strategic benchmarks may have increased equities exposure.

But he added funds are generally split into two camps: "One is those that really are trying to stretch very hard for extra return because they feel squeezed and they're under pressure — in order to do well they have to take a certain amount of risk, which is consistent with having more in equities."

He said some large funds have been open about the fact they are exploring bigger commitments to equities.

The other camp are those funds that are more mature, with some pension funds becoming "conscious of the merits of managing risk, reducing risk, containing risk, and that usually involves a program" of LDI. "That approach is still very much a minority of the 300, but has grown," added Mr. Urwin.

By region, the nine North American funds in the top 20 reduced their allocations to both equities and bonds during the year. Equities fell to 46.5% exposure, from 46.8% in 2015. Fixed-income allocations were 18.8%, down from 19.3%. Alternatives and cash took up the balance, growing to 34.7% from 34%.

Among the six Asia-Pacific funds, equities allocations grew to 39.2% from 37.7% a year previous. Alternatives and cash exposure grew to 6.6% from 4.3%. Growth was at the expense of bonds, where allocations fell to 54.2% from 58.1% in 2015.

The remaining five funds, based in Europe and other regions, saw equity allocations grow to 48.3% from 46.9%. Alternatives and cash allocations grew to 14.4% from 14% a year previous, and fixed-income exposure fell to 37.3%, from 39.6% a year previous.

P&I/Willis Towers Watson World 300: The largest retirement funds
Ranked by total assets, in millions. U.S. fund data are from the P&I 1,000, published Feb. 6, 2017; non-U.S. fund data are as of Dec. 31, 2016, unless otherwise noted.
RankFundCountryTotal
assets
Defined benefitDefined contribution
1Government Pension InvestmentJapan$1,237,636$1,237,636
2Government Pension FundNorway$893,088
3Federal Retirement ThriftU.S.$485,575$485,575
4National PensionSouth Korea$462,161$462,161
5ABPNetherlands$404,310$404,310
6National Social SecurityChina$348,662
7California Public EmployeesU.S.$306,633$305,199$1,434
8Canada Pension1Canada$235,790$235,790
9Central Provident FundSingapore$227,102$227,102
10PFZW1Netherlands$196,461$196,461
11California State TeachersU.S.$193,871$193,154$717
12New York State CommonU.S.$184,461$184,461
13Local Government OfficialsJapan$183,161$183,161
14New York City RetirementU.S.$171,574$171,574
15Employees Provident FundMalaysia$165,464$165,464
16Florida State BoardU.S.$153,942$144,672$9,270
17Texas TeachersU.S.$133,221$133,221
18Ontario TeachersCanada$130,642$130,642
19GEPF2South Africa$119,186$119,186
20ATPDenmark$113,160$113,160
21Employees' ProvidentIndia$110,348$110,348
22BoeingU.S.$107,380$59,058$48,322
23New York State TeachersU.S.$107,042$107,042
24IBMU.S.$101,577$54,007$47,570
25Wisconsin Investment BoardU.S.$101,209$96,962$4,247
26Pension Fund Association1Japan$100,123$100,123
27North CarolinaU.S.$99,453$89,824$9,629
28AT&TU.S.$96,262$54,058$42,204
29General MotorsU.S.$96,183$69,430$26,753
30National Federation of Mutual AidJapan$94,759
31Washington State BoardU.S.$92,348$76,758$15,590
32Future FundAustralia$92,046
33Ohio Public EmployeesU.S.$90,508$89,344$1,164
34AlectaSweden$83,998$83,998
35Labor Pension FundTaiwan$80,523$26,124$54,399
36AustralianSuperAustralia$78,135
37California UniversityU.S.$76,988$56,141$20,847
38New JerseyU.S.$75,728$72,038$3,690
39General ElectricU.S.$74,572$46,274$28,298
40Bayerische VersorgungskammerGermany$72,778$72,778
41Virginia RetirementU.S.$72,241$69,486$2,755
42Oregon Public EmployeesU.S.$71,763$69,967$1,796
43Metaal/tech. BedrijvenNetherlands$71,741$71,741
44Ohio State TeachersU.S.$71,361$70,095$1,266
45National Wealth Fund3Russia$70,836
46PFA PensionDenmark$70,707$70,707
47Michigan RetirementU.S.$68,677$61,611$7,066
48Royal Dutch Shell4Netherlands$67,833$67,833
49Georgia TeachersU.S.$66,981$66,981
50Lockheed MartinU.S.$65,938$32,051$33,887
51Minnesota State BoardU.S.$65,529$57,804$7,725
52National Public ServiceJapan$65,229$65,229
53Public Institute for Social Security1, 5Kuwait$65,046
54Ontario Municipal EmployeesCanada$63,516$63,516
55Massachusetts PRIMU.S.$63,264$63,264
56BT Group1U.K.$63,072$63,072
57Public Service Pension Plan2Canada$63,046
58BouwnijverheidNetherlands$61,950$61,950
59Universities Superannuation2U.K.$61,453$61,453
60Royal Bank of Scotland Group6U.K.$60,749$60,749
61Ford MotorU.S.$59,175$44,730$14,445
62Lloyds Banking Group6U.K.$56,243$56,243
63United Nations Joint StaffU.S.$54,827$54,827
64Healthcare of OntarioCanada$52,354$52,354
65United Parcel ServiceU.S.$52,279$32,306$19,973
66Tennessee ConsolidatedU.S.$50,191$44,405$5,786
67Pennsylvania School Empl.U.S.$49,807$49,807
68AMF PensionSweden$49,507$49,507
69PreviBrazil$49,376$49,376
70Bank of AmericaU.S.$49,000$18,600$30,400
71Los Angeles County Empl.U.S.$48,924$48,924
72QSuperAustralia$48,870
73Organization for WorkersJapan$48,584$48,584
74Quebec Government & PublicCanada$47,565$47,565
75Colorado EmployeesU.S.$47,282$43,684$3,598
76AFP HabitatChile$47,131$47,131
77PMENetherlands$46,905$46,905
78KevaFinland$46,718$46,718
79Northrop GrummanU.S.$46,478$25,725$20,753
80Maryland State RetirementU.S.$46,285$46,285
81Quebec PensionCanada$46,276$46,276
82Illinois TeachersU.S.$45,698$45,698
83United TechnologiesU.S.$45,504$24,791$20,713
84AFP ProvidaChile$45,410$45,410
85KaiserU.S.$45,351$27,068$18,283
86VarmaFinland$45,068$45,068
87Wells FargoU.S.$45,005$10,565$34,440
88VerizonU.S.$44,453$15,472$28,981
89Electricity Supply Pension1, 5U.K.$42,858
90First State SuperAustralia$42,743$42,743
91Public School EmployeesJapan$42,368$42,368
92UniSuperAustralia$39,788
93Barclays Bank U.K.U.K.$39,266$39,266
94IlmarinenFinland$39,138$39,138
95Missouri Schools & EducationU.S.$38,735$38,735
96FedExU.S.$37,998$23,828$14,170
97FRRFrance$37,861
98Teamsters, Western Conf.U.S.$37,241$37,241
99Bundes PensionskasseSwitzerland$37,129
100SampensionDenmark$36,811
101AP Fonden 3Sweden$36,516
102AP Fonden 4Sweden$36,245
103Alabama RetirementU.S.$36,009$33,960$2,049
104Illinois MunicipalU.S.$35,821$35,821
105Nevada Public EmployeesU.S.$35,803$35,803
106J.P. Morgan ChaseU.S.$35,758$14,239$21,519
107Private Schools EmployeesJapan$35,638$35,638
108 Alcatel-LucentU.S.$35,510$27,818$7,692
109AFP CuprumChile$35,391$35,391
110AP Fonden 2Sweden$35,235
111RaytheonU.S.$34,809$19,208$15,601
112Exxon MobilU.S.$34,550$13,580$20,970
113B.C. MunicipalCanada$34,526$34,526
114Arizona State RetirementU.S.$34,521$34,521
115South Carolina Public Empl.U.S.$34,120$28,645$5,475
116AFP CapitalChile$33,832$33,832
117AP Fonden 7Sweden$33,607
118Utah State RetirementU.S.$33,579$28,778$4,801
119HSBC BankU.K.$33,442$33,442
120AP Fonden 1Sweden$33,149
121State FarmU.S.$33,000$22,000$11,000
122Afore XXI Banorte7Mexico$32,784$32,784
123National Pension Association5Japan$32,511$32,511
124Railways PensionsU.K.$31,523
125RESTAustralia$31,499$31,499
126HoneywellU.S.$31,374$17,920$13,454
127PensionDanmarkDenmark$30,955$30,955
128 Johnson & JohnsonU.S.$30,704$16,214$14,490
129Indiana Public RetirementU.S.$30,690$25,560$5,130
130Pennsylvania EmployeesU.S.$30,664$27,483$3,181
131BPU.K.$30,180$30,180
132Connecticut RetirementU.S.$30,144$30,144
133State SuperAustralia$30,057
134BVK des Kantons ZurichSwitzerland$29,993$29,993
135British AirwaysU.K.$29,594$29,141$453
136ChevronU.S.$29,447$11,187$18,260
137Alaska RetirementU.S.$29,181$23,841$5,340
138Iowa Public EmployeesU.S.$29,050$29,050
139 ING PensioenfondsNetherlands$29,046$29,046
140SunsuperAustralia$28,544
141CSCAustralia$28,327$28,327
142Texas EmployeesU.S.$28,163$25,499$2,664
143Local Authorities Pension BoardCanada$28,070$28,070
144BVVGermany$27,973$27,973
145HESTAAustralia$27,967$27,967
146RabobankNetherlands$27,899$631$27,268
147Retirement Fund-KWAPMalaysia$27,863$27,863
148ABN AMRO PensioenfondsNetherlands$27,614$27,614
149Delta Air LinesU.S.$27,500$10,500$17,000
150ERAFP8France$27,239
151PorvenirColombia$27,233$27,233
152Mississippi EmployeesU.S.$26,977$25,358$1,619
153CbusAustralia$26,670$26,670
154VervoerNetherlands$26,633$26,633
155BAE SystemsU.K.$26,401$26,401
156FCA USU.S.$25,940$20,379$5,561
157Texas County & DistrictU.S.$25,644$25,644
158PfizerU.S.$25,306$12,066$13,240
159Grafische BedrijvenNetherlands$25,291$25,291
160Greater ManchesterU.K.$25,167$25,167
161Afore Banamex7Mexico$25,138$25,138
162National RailroadU.S.$25,095$25,090$5
163British Coal Pension Schemes9U.K.$24,733$24,733
164Mitsubishi UFJ Financial1Japan$24,565
165 DuPontU.S.$24,414$14,201$10,213
166 CitigroupU.S.$24,378$12,826$11,552
167ExelonU.S.$24,279$17,341$6,938
168Texas Municipal RetirementU.S.$24,278$24,278
169Dow ChemicalU.S.$24,191$15,051$9,140
170UBSSwitzerland$24,159$24,159
171Shell OilU.S.$24,094$13,443$10,651
172American AirlinesU.S.$24,039$10,121$13,918
173San Francisco City & CountyU.S.$23,909$20,996$2,913
174Labor Insurance Fund5Taiwan$23,904$23,904
175VBL5Germany$23,846$23,846
1763MU.S.$23,463$14,864$8,599
177ZilverfondBelgium$23,422
178Strathclyde Pension FundU.K.$23,257$23,257
179AvivaU.K.$23,203$23,203
180Elo Mutual Pension InsuranceFinland$22,619$22,619
181Nestle6Switzerland$22,587$22,587
182Wal-Mart StoresU.S.$22,373$22,373
183Unilever6U.K.$22,278$22,278
184General DynamicsU.S.$22,170$9,171$12,999
185Social Insurance FundsVietnam$21,970
186ProtecciónColombia$21,899$21,899
187Migros-Genossenschafts-BundSwitzerland$21,791
188Ireland Strategic InvestmentIreland$21,770
189Industriens PensionDenmark$21,723$21,723
190Federal Reserve EmployeesU.S.$21,531$13,846$7,685
191Procter & GambleU.S.$21,492$1,829$19,663
192DaimlerGermany$21,365$21,365
193PG&EU.S.$21,316$15,277$6,039
194Afore Sura7Mexico$21,256$21,256
195Government Pension9Thailand$21,256$21,256
196Government Service InsurancePhilippines$21,228
197Public Service Pension Fund5Taiwan$20,908$20,908
198CaterpillarU.S.$20,769$12,135$8,634
199PepsiCoU.S.$20,500$12,100$8,400
200 Prudential FinancialU.S.$20,455$12,820$7,635
201PetrosBrazil$20,408$20,408
202State PensionFinland$19,737$19,737
203Illinois State BoardU.S.$19,606$15,609$3,997
204Los Angeles Fire & PoliceU.S.$19,568$19,568
205B.C. Public Service2Canada$19,556$19,556
206HPU.S.$19,442$11,414$8,028
207MerckU.S.$19,430$10,709$8,721
208New Zealand Superannuation10New Zealand$19,397
209ENPAMItaly$19,382
210National ElectricU.S.$19,355$12,939$6,416
211Afore Profuturo GNP7Mexico$19,155$19,155
212National Grid1U.K.$19,113$19,113
213United Continental HoldingsU.S.$19,100$3,400$15,700
214B.C. TeachersCanada$18,996$18,996
215Illinois State UniversitiesU.S.$18,982$17,172$1,810
216Mizuho Financial Group1Japan$18,597
217New York State Def. Comp.U.S.$18,578$18,578
218Louisiana TeachersU.S.$18,552$16,696$1,856
219World BankU.S.$18,478$18,478
220ESSSuperAustralia$18,452
221Fujitsu1, 6Japan$18,386
222Wespath (UMC)U.S.$18,247$7,860$10,387
223Nippon Telegraph & Telephone1Japan$18,158
224Ontario Pension BoardCanada$18,142$18,142
225Kansas Public EmployeesU.S.$18,088$17,428$660
226Sygeplejersker og LaegesekretaererDenmark$17,865
227FUNCEFBrazil$17,378$17,378
228CenturyLinkU.S.$17,293$11,796$5,497
229Kentucky TeachersU.S.$17,279$17,279
230BBC1, 5U.K.$17,247$17,247
231Canada PostCanada$17,226$17,226
232GESBAustralia$17,083$17,083
233Hydro-QuebecCanada$17,066$17,066
234Laegernes PensionskasseDenmark$17,065
235SBB PensionskasseSwitzerland$16,903$16,903
236Walt DisneyU.S.$16,880$10,365$6,515
237Super SAAustralia$16,867$16,867
238British Steel Pension Scheme2U.K.$16,827$16,827
239New York City Def. Comp.U.S.$16,805$16,805
240DeereU.S.$16,788$11,137$5,651
241Panasonic1Japan$16,746
242Consolidated EdisonU.S.$16,505$13,046$3,459
243AkzoNobel6U.K.$16,481$16,481
244Rolls-RoyceU.K.$16,474$16,474
245Integra11Peru$16,449$16,449
246National Rural ElectricU.S.$16,436$7,713$8,723
247Fonds de Comp./Securite SocialeLuxembourg$16,376
248Magistrenes PensionskasseDenmark$16,328$16,328
249SpoorwegpensioenfondsNetherlands$16,292$16,292
250Tesco6, 12U.K.$16,284$16,284
251Siemens9Germany$16,065$16,065
252International PaperU.S.$15,972$10,825$5,147
253 MetLifeU.S.$15,960$9,045$6,915
254 Southern Co.U.S.$15,931$10,135$5,796
255HOSTPLUSAustralia$15,858$15,858
256Fondo de Reserva SeguridadSpain$15,796
257IntelU.S.$15,777$824$14,953
258City of ZurichSwitzerland$15,726
259Credit SuisseSwitzerland$15,697
260 GlaxoSmithKlineU.K.$15,527$15,527
261PK PostSwitzerland$15,526
262Teamsters, Central StatesU.S.$15,508$15,508
263BP AmericaU.S.$15,483$8,065$7,418
264Idaho Public EmployeesU.S.$15,406$14,667$739
265Quebec Construction IndustryCanada$15,398
266Bell CanadaCanada$15,301$15,301
267MicrosoftU.S.$15,250$15,250
268Duke EnergyU.S.$15,203$7,611$7,592
269Operating Eng. InternationalU.S.$15,159$15,159
270FEFSSPortugal$14,983
271Hawaii EmployeesU.S.$14,978$14,978
272New Mexico Public Empl.U.S.$14,975$14,459$516
273Los Angeles City EmployeesU.S.$14,954$14,954
274Georgia EmployeesU.S.$14,926$13,580$1,346
275 Ernst & YoungU.S.$14,902$7,209$7,693
276Allianz6Germany$14,774$14,774
277Government Employees PensionSouth Korea$14,611$14,611
278HCA HoldingsU.S.$14,596$515$14,081
279Liberty MutualU.S.$14,537$7,396$7,141
280Air CanadaCanada$14,464$14,464
281Arkansas TeachersU.S.$14,406$14,406
282Ohio Police & FireU.S.$14,405$14,405
283West Midlands Metropolitan2U.K.$14,389$14,389
284Oklahoma TeachersU.S.$14,359$14,179$180
285DeloitteU.S.$14,254$4,596$9,658
286OPSEUCanada$14,171$14,171
287 FMRU.S.$14,112$14,112
288Zenkoku Shinyo Kinko1Japan$14,085$14,085
289Hitachi1Japan$14,048
290Baden-WurttembergischeGermany$13,986$13,986
291West Yorkshire2U.K.$13,834$13,834
292Banco Santander (U.K.)U.K.$13,796$13,796
293RWEGermany$13,705$13,705
294Eli LillyU.S.$13,633$7,452$6,181
295Siemens USAU.S.$13,630$3,492$10,138
296West Virginia InvestmentU.S.$13,575$13,575
297Teachers' PensionSouth Korea$13,544$13,544
298AetnaU.S.$13,395$6,102$7,293
299 Nebraska Investment CouncilU.S.$13,373$12,351$1,022
300Telstra SuperAustralia$13,335
Total$15,734,821$9,735,220$3,322,872
Notes: 1 As of March 31, 2017; 2 As of March 31, 2016; 3 As of Jan. 1, 2017; 4 Global figure (ex-U.S.); 5 Estimate; 6 Global figure; 7 As of May 31, 2017; 8 As of Jan. 31, 2017; 9 As of Sept. 30, 2016; 10 As of June 30, 2016; 11 As of April 30, 2017; 12 As of Feb. 25, 2017
Note: The defined benefit and defined contribution breakouts were not available or applicable to all non-U.S. funds.