The world's 300 largest pension funds became 8.65% richer in 1996, sustaining their recent growth rates of 9.4% in 1995 and 7.4% in 1994, according to the annual survey by Pensions & Investments and InterSec Research Corp.
In all, the world's 300 largest funds reported assets of $4.166 trillion last year.
In a separate survey, Stamford, Conn.-based InterSec estimated total pension assets worldwide hit $8.5 trillion at the end of 1996.
Hot markets were pivotal to the funds' nearly 9% asset growth rate last year.
The surge in the U.S. market was particularly influential to the asset growth, because U.S. funds comprise 58.6% of the total assets of the world's largest funds. Last year, the Standard & Poor's 500 Stock Index shot up 23%.
Other markets also were up by impressive amounts. For example, the Morgan Stanley Capital International Europe Index jumped 21.6%, while the MSCI Pacific Basin, excluding Japan, advanced 21%.
However, the broader MSCI Australasia Far East Index rose only 6.4% last year, clearly depressed in large part by the 15.4% tumble in Japan's market, as measured by the MSCI Japan Index.
As ever, currency fluctuations alter non-U.S. funds' asset size when converted to U.S. dollars for the survey.
Last year, the dollar rose against the Japanese yen and Deutschmark bloc currencies; that, in turn, lowered the size of pension funds denominated in those currencies when converted to dollars.
'Another solid year'
In general, however, "1996 was another solid year for the median balanced fund in all countries reviewed," noted the global asset study produced by the Reigate, England, office of Watson Wyatt Worldwide.
Last year's "economic backdrop was highlighted by the continued sedateness of global inflation, which enabled interest rates to remain stable . . . and strong corporate earnings, which fueled another remarkable year for most equity markets."
In 1996, Watson Wyatt's data showed, in U.S. dollar terms, that the average median balanced return of 16 pension markets studied was 13.38%; that compares with a 15.76% average median balanced return of 15 markets studied the year before.
Last year, median balanced returns ranged from a high of 30.9% in Mexico to a low of -6.7% in Japan, in U.S. dollar terms.
For the three-year period ended in 1996, Watson Wyatt's data also showed that 15 markets studied had an average 9.78% per annum return.
As one finding, Watson Wyatt's data show funds fulfilling an important mission: providing a return that exceeds the rate of salary increases.
In local currency terms, in 15 out of 16 markets studied last year, funds' median balanced returns beat salary inflation; and for the 1994-'96 period, the median balanced returns bested salary inflation in 12 out of 15 markets studied, also in local currency terms.
Few changes in rankings
In terms of the top 300 funds' individual standings, the current lineup shows little change from the previous year's ranking.
Indeed, the same top five funds - head by Stichting Pensioenfonds-ABP/UFZO (also known as Algemeen Burgelijk Pensioenfonds) of the Netherlands - retain their standings from the 1995 ranking.
And among the top 10 funds, the only new member is the Florida State Board of Administration, Tallahassee, which ranked 12th previously. Florida replaced AT&T Corp., whose pension assets fell to 38th in 1996. The drop was caused by the spinoff of Lucent Technologies Inc. The $39.5 billion Lucent fund now ranks 22nd.
(Most of the top 300 funds' assets are reported as of Dec. 31. However, assets of U.S. funds were reported as of Sept. 30, and those of Chilean funds were as of Nov. 30.)
Assessed by country, the United States claimed an even larger share - 58.63% - of the whole than the 57.08% share it held the year before. Japan was second, with a 9.95% share, followed by the United Kingdom, with 8.62%, and the Netherlands, with 6.35%.
Other countries' percentages of the total were: Canada, with 3.89%; Sweden, 2.34%; Switzerland, 1.51%; Germany, 1.27%; Singapore, 1.2%; Malaysia 1.06%; and Denmark, 1.04%. All of the other represented countries had less than 1% of the total assets of the top 300 funds.
Among the top funds overall, the picture is one of "steady and continuing" asset growth, said Thomas Rowley, a principal with William M. Mercer in New York.
Faster growth needed
But experts agree that the need for, and likelihood of, faster growth looms on the horizon.
Aging populations, coupled with budgetary constraints around the world, are fueling interest in private pension systems. And in many cases these will be taking shape as defined contribution plans.
Broadly, from Japan to South America, countries and companies are already finding they need to boost the size of their pension assets to accommodate the growing number of retirees ahead. Today, "maybe 15% of the world's population (of about 5.5 billion) are living in environments where pensions are funded," noted Mercer's Mr. Rowley.
"If the rest of the world starts to move in the direction" of funded pension plans, asset growth rates would certainly move into double-digit territory, he noted.
Indeed, "if China were to introduce some funded pension plan for its 1.2 billion people, it would not take long for money to accumulate to a large amount," he said.
59.2% hike predicted
Just between 1996 and 2001, InterSec Research estimates world pension assets should jump 59.2%, to $13.532 trillion.
From a low base, much of the sharpest growth rates should come from economically emerging markets and regions. For example, between 1996 and 2001, InterSec projects pension assets should jump 106%, to $233 billion, in Latin America and 107%, to $321 billion, in the combined regions of Africa, the Middle East and Asia outside of the Pacific Basin.
During the same five-year period, assets should grow at a comparatively slower rate in some of the more developed regions. For instance, according to InterSec's forecasts, pension assets should rise 50.7% in North America, 61.9% in Europe and 74.1% in the Pacific Basin.
All the while, the defined contribution market appears poised to accelerate. Between 1995 and 2002, InterSec projects that defined contribution assets outside of the United States should increase 16%; that's almost double the 9% growth projected for defined benefit plans.
