U.S. pension funds, aided by strong equity and bond returns and a declining dollar, returned 19.6% in 2009, outperforming their peers in the world's seven largest markets.
Strong equity markets lifted pension fund returns worldwide into double digits, a major about-face from 2008 when real returns sank as low as -27%. U.S. plans lost an average 25.2% in 2008.
Pension fund returns in the U.K. rose 14.5% in 2009, in part because of a falling pound boosting international investment returns. U.K. plan returns sank 13.1% in 2008.
Currency movements went the other way in commodities-rich countries like Australia and Canada in 2009. Aussie investors returned an average 14%, after the Australian dollar soared against most major currencies. The real return in 2008, which included a 5% bump in inflation, was -27%. Canadian pension funds were up 13.8% last year, after losing 14.7% in 2008.
Pension fund returns in the Netherlands, Switzerland and Japan rose 13.2%, 10.8% and 9.5% in 2009, respectively. Dutch funds were up from a -16.6% return in 2008, when Swiss funds returned -13.3% and Japan, -21.2%.
Despite the financial crisis of 2008-2009, few plans made major changes to their asset allocations, experts said.
“It was kind of a 'deer-in-the-headlights' situation for most (Canadian) investors” after losses in 2008 and early 2009, said Bruce Curwood, director, investment strategy, at Russell Investments' Toronto office, which provided the estimate for Canadian plans.
Instead, pension officials reviewed risk and governance. “People are uncomfortable with the volatility they had, and they're really starting to look at risk management in a big way,” Mr. Curwood said. “I think you'll see more comprehensive risk management assessments and reviews this year.”
U.S. plan executives are also looking closely at risk management, said Gregory Stewart, Everett, Mass.-based managing director, global product management, at BNY Mellon Asset Servicing. He said U.S. plan officials used to focus on maximizing asset returns, but about five years ago, they began to look at controlling liabilities. “Now we're starting to see they're looking at it in three dimensions: assets, liabilities and risks,” he said.
“Equity returns really drove the performance for most institutional investors in 2009,” Mr. Stewart said. “If you look across equity markets, it was almost impossible to have a bad allocation.”
“Investors in general were looking toward better returns on a global macroeconomic basis,” said Graham Wood, Edinburgh-based senior consultant at State Street Corp. subsidiary WM Performance Services.