Global institutional pension fund assets in 11 major markets more than doubled in the past 10 years, according to Watson Wyatt Worldwide's Global Pension Assets Study, released today. Assets totaled $23 trillion at year-end 2006 and accounted for 81% of the combined gross domestic product of the 11 countries, the report said.
The U.S. led the pack with $13.9 trillion in assets, followed by Japan with $3.1 trillion and the U.K. at $2.34 trillion. The 7.5% compound annual rate of growth was partly due to strong performance of markets throughout the world. Pension funds in the largest markets — the U.S., Japan, U.K., Canada, Netherlands, Australia and Switzerland — have a global average allocation of 60% in equities, 26% in bonds and 14% in other assets including cash and alternative investments, according to the report.
The other countries in the study were Germany, France, Ireland and Hong Kong.
"We see in the recent trends, a leveling off in the growth of the equity content and a turning point in which both bond allocation and alternative assets are set to grow," Roger Urwin, Watson Wyatt's global head of investment consulting, said in a news release.
Factors driving this change include: improved funding positions allowing for more moderate and less risky investment goals; regulatory and accounting changes that encourage better matching of assets to liabilities; and a reduction in risk tolerance as funds mature. As a result, "pension fund investment is subject to change on an unprecedented level," according to the report.
The report notes that liability-driven investing approaches, absolute return and alternative investment strategies, and alpha-beta separation strategies all are being increasingly used.