One of the most notable changes evidenced by the data was the ranking of countries by pension assets.
The U.S. retained its place as the market with the lion's share of pension assets of the top 300 funds, with 126 funds and 35.9% of total assets, up from 124 plans and 35% of total assets in 2012, thanks to strong equity returns and appreciation of the dollar vs. the yen, Australian dollar and Canadian dollar.
“Many public-sector investment systems in the U.S. have low weighting to alternatives and much higher weighting in public equity markets, partly because the public pension systems in the U.S. have been desperate to get alpha, (and) to outperform because of continuing low discount rates on the DB liabilities,” Mr. Clark said. “I think what we see (in the results) is the success of that kind of strategy, a public-facing equity market bias taking large risks in the hope of compensating on the very low discount rate.”
The top-ranking U.S. plan was the $375.8 billion Federal Retirement Thrift Investment Board, Washington, whose assets increased 15.2% compared with 2012. The plan was fifth in the overall ranking. A spokesman for the fund said the increase was due to net positive cash flow of $9.66 billion for 2013, and positive markets. He said the plan's funds, with the exception of one, “track broad market indexes.”
Japan's depreciating currency saw its share of assets drop to 12.6%, down from 14.7% last year, although the market remains in second place.
The Netherlands remained in third place, with a slight increase in asset share, up 0.2 percentage points to 6.8%.
The big surprise was Norway's entry to the top five countries, which displaced Canada from fourth place and the U.K. from the top five completely. Norway's share increased to 5.8% this year, moving it into fourth place, from 5.1% in 2012 — when it sat in sixth place in the country rankings. That is completely attributable to the performance of the sovereign pension fund, according to the top 300 ranking.
Canada-based plan assets remained steady, with 5.5% of total assets. “Canada has done so well because (the funds) were so exposed to the vibrant U.S. equity markets,” Mr. Clark said.
The U.K. dropped to sixth in the country rankings in 2013, despite a slight increase in asset share to 5.3%; it was fifth in 2012 with a 5.2% share. The U.K. pound appreciated 2.35% against the U.S. dollar.
“This is a very telling figure,” Mr. Clark said. “What we know is that, U.K.-wise, with the decline in workplace pension benefits in the private sector, growth in assets has probably been rather modest.” He said the decline in ranking by asset share will continue for the U.K., while Australia and the Netherlands — where a “virtually universal pension fund system, (which means) almost all workers are enrolled into a workplace pension” — will continue to grow.
However, Mr. Urwin said that it is worth noting that the U.K. is now the second-largest pensions market in the world, according to Towers Watson's Global Pension Asset Study. “The decline relative to other markets (in the top 300) is based on paying out a lot of pensions in many cases from a derisking portfolio. Many have moved into lower risk positions. The UK also doesn't have any dominating state sector schemes — when you look at other countries, most have something like that, which are still accruing,” he said.
Asset allocation also buoyed results for some pension funds. In Australia, where superannuation funds have been gaining assets, having a home-country bias for equities turned out to be a good decision, Mr. Clark said. The S&P ASX 200 index gained 20.21% in Australian dollar terms, or 3.35% in U.S. dollar terms, while the currency depreciated 11.72% against the U.S. dollar in 2013. On the whole, pension funds in the market gained assets, with AustralianSuper standing out with 17.2% asset growth to $64.9 billion.
As for 2014, Mr. Urwin warned that fund executives will have to work harder for their returns, rather than hoping the markets will deliver the same growth. “The general state of the economy (so far in 2014 indicates we are) pretty set in at an anemic growth position,” he said. “We are in relatively benign inflationary conditions.”
A 5% or 6% return for 2014 would be “reasonable,” he said, although “Most of the funds would not find that an adequate return from the markets, and would therefore be working hard to find another 1% or 2% from added value sources. The equity markets saw exceptional growth in 2013 - that is unlikely to repeat in 2014 or 2015.”
Fund executives will also continue to struggle with quantitative easing. “The potential end of QE, and the associated favorable monetary conditions, which isn't likely to come in 2015, is of great significance to pension funds having to mark liabilities to market. Funding status is volatile and weak,” said Mr. Urwin. “As interest rates creep up, pension funds expect to find life easier in funding status disclosures. But that may not materialize anytime soon.”
The Russell 3000 has gained 4.82% for the year through July 31, while the MSCI All-Country World ex-U.S. index has returned 4.93%. Other parts of the market are looking even more positive than 2013. The MSCI Emerging Markets index is looking far better than last year, with returns of 8.26% over the same period, while the Barclays Capital Global Aggregate Bond index is also back into positive territory, with 3.99% returns through July 31.
Data Editor Timothy Pollard contributed to this story.