Assets of the world's largest 300 pension funds - measured in U.S. dollar terms - jumped 14.3% in 1993, dwarfing the previous year's 5.5% gain, according to the annual survey by Pensions & Investments and InterSec Research Corp.
Robust world market performances - and in some cases additional contributions to funds - propelled the asset growth, which reached $3.2658 trillion. As one barometer, the Morgan Stanley Capital International World Index climbed 23.11% in dollar terms last year; the MSCI Europe Australasia Far East Index (which excludes the U.S. market) jumped 32.94%.
Asset gains were all the more impressive with funds in countries, such as those in many parts of Europe, where the dollar gained against the local currency. Those funds had better results when they were measured in local currency terms than when they were converted to dollars for the survey.
Among the largest funds, the United States continued to hold the lion's share, or 181 out of 300 funds. As a percent of total assets, U.S. funds claimed 60%, followed by those in Japan with 12.7% of the total, those in the United Kingdom with an 8.8% share; funds in the Netherlands with 5.9%; those in Canada with 3.8%, Sweden with 2%; Switzerland with 1.37%; 1% for Germany; 1% for Singapore (representing solely the Central Provident Fund); and less than 1% for pension funds in Denmark, Australia, France and Malaysia.
The overall jump in world pension assets may prove to be an aberration. Few expect world markets to continue roaring as loudly - at least on a consistent basis. A separate study by InterSec, based in Stamford, Conn., points to slower growth of world pension assets. According to InterSec, the growth rate of total world pension assets (not just the largest 300 plans) will average 9% annually for the five years ended 1998 - to reach $10.3 trillion, compared with 12% average annual growth for the five years ended 1993.
But even so, pressures to boost pension assets worldwide are also on the rise - creating ever more serious concerns for countries and companies.
As ever more workers around the world approach retirement age, demands on pension assets will intensify, forcing plan sponsors to consider various options. These range from cutting benefits to boosting their fund contributions to investing assets more aggressively. In some cases, perhaps more than one option will be necessary. Today, to shed costs, governments are increasingly putting pressure on companies to shoulder the responsibility for workers' future pension benefits.
Roger Beech, a principal with the British-based employee benefits consulting firm of Sedgwick Noble Lowndes, expects pension sponsors over time to transfer more of the burden of pension funding to their employees - a move already underway in the United States, with the spread of defined contribution plans. That trend is also catching on elsewhere in the world, including in parts of Europe, especially the United Kingdom, he said.
Meanwhile, ever more pension sponsors around the world are urgently seeking ways to bolster their investment returns. That trend was illustrated by a separate InterSec Restudy this year on investment strategies by European institutional investors (see related story). Among other things, the study uncovered increased use of foreign specialist managers as well as an overall sizable amount of interest in global/international investing.
But in continental Europe, and in many other places in the world, pension funds, where they exist, often still face governmental restrictions or guidelines on their investments. It remains unclear if or when the rules - which often encourage conservative investing - will be replaced. The European Commission, for example, recently dropped a controversial plan that would have liberalized cross-border investment rules for pension funds in the European Union.
In Japan, home-based trust banks and life insurers still manage the bulk of pension assets, even though returns have been what the New York-based Securities Industry Association calls "poor." That bodes badly for employers and employees. As the SIA predicted, the "continued underperformance" of Japanese money managers (vs. those of a sampling of U.S. money managers) will "result in (the need for) significantly larger contributions in the future." (P&I, June 27).
To avoid that possibility, more companies - reportedly led by U.S.-based multinationals - are scrutinizing their investment strategies. Within legal limits, they want to maximize the returns of both their domestic pension plan and their foreign subsidiaries.
Jack Stair, senior consultant with E.I. du Pont de Nemours & Co., said that with its units overseas, "duPont in recent years has been replacing its insurance contracts (for pension benefits) with pension plans as a means to improve investment returns. Insurance companies tend to be conservative investors," he said. But when returns can be improved "it's a cost-savings, since the company doesn't have to put (as much) money into pension benefits."
Mr. Stair said du Pont had almost completed its transition to pension funds from insurance contracts. Other multinationals he knew of either already had or were in the process of "getting out of insurance contracts and (setting up) pension funds" for their non-U.S. subsidiaries.