Executives at five of the 20 largest funds expressed concern in their annual reports that investment returns were being depressed by low interest rates, and that the trend was far from over. For example, the $121.6 billion ATP, Copenhagen, wrote in its report that “the task of securing the necessary assets to meet the pension commitments made to members has been rendered significantly more difficult by low interest rates, combined with increasing life expectancy.”
On the plus side, as investors have crowded into bonds, yields have dropped, resulting in equity-like returns. The Citigroup World Government bond index rose 6.4%, while the Barclays Capital Aggregate index rose 7.8% in 2011. Those were trounced by the BarCap Long Government/ Credit index, which rose 22.5%.
Also, declining bond yields have pushed up calculations of liabilities at many defined-benefit funds. That's elicited fresh contributions from employers in some cases, however those flows have been “not enough to tilt the scales” when it comes to the largest funds in the world, Mr. Hess said.
The Government Pension Investment Fund, Tokyo, again held the top spot on the list with $1.395 trillion, a 2.6% decline from the 2010 ranking. The fund has remained atop the ranking since 2002, and is in no danger of losing out to No. 2 ranked Government Pension Fund Global, Oslo, with $576 billion in assets.
Japanese funds have risen by an average 5.5% each of the past five years in U.S. dollar terms, however, they've declined by an annual 3.2% in local currency terms, as the yen as appreciated against the dollar an average of 9% each year since 2006.