Average investment returns in 2011 for pension funds in major markets globally were anemic at best, ranging between -3% and 3%, according to estimates by consultants and global custodians.
Driven by sharp falls in global equity markets in the third quarter of 2011, some of the losses were subsequently reversed with “the fourth quarter casting a little sunshine on a dreary year,” said Gregory Stewart, managing director and regional product manager at BNY Mellon Asset Servicing based in Pittsburgh.
Despite ongoing efforts by pension funds to diversify away from equities, returns in 2011 were still closely tied to the fortunes of global stock markets, consultants said.
Meanwhile, bonds helped to cushion “the wild swings” in equity markets, said David Cullinan, vice president and head of performance consultancy at State Street Investment Analytics, Edinburgh.
The average U.S. pension fund grew an estimated 1.4% in 2011, compared to 12.9% the previous year, according to BNY Mellon Asset Servicing, which combined actual returns data for the first 11 months of the year with a December estimate.
In Japan, which is the second-largest pension fund market, the average pension fund lost 2.7% in 2011, compared to a gain of 1.6% the previous year, according to Russell Investments.
U.K. pension funds, which make up the third-largest pension market globally, also saw lower average estimated returns in 2011 at 3% — compared to 13% the previous year, according to State Street Investment Analytics. However, returns are likely to be considerably lower for the majority of funds because they maintain large exposures to equity, Mr. Cullinan said.
High exposure to domestic equity markets hurt Australian pension funds. The S&P/ASX 300 index returned about -11% in 2011 and as a result, the average Australian pension fund returned about -2.5% in 2011 compared to 3.5% the previous year, according to Mercer.
Canadian pension funds returned about 2.4% in 2011, according to Russell. Swiss pension funds averaged an annual return of about -0.6% in the same period, according to the Credit Suisse Swiss Pension Fund index. (The index tracks actual pension fund data from Credit Suisse Group AG's custody business.) In comparison, average returns in 2010 were about 10% and 3% for Canadian and Swiss funds, respectively.
“Equity has been a drag on performance” this year, said Edouard Stucki, senior investment consultant at Towers Watson & Co., Zurich.