The good times have well and truly stopped rolling for the world's largest retirement funds, despite all-time highs across global stock markets, analysis of data from the annual survey conducted by Pensions & Investments and Willis Towers Watson PLC shows.
Annualized growth for the five years ended in 2015 was 3.5% for the largest 300 retirement funds and 3.6% for the 20 largest funds, the data show. Over the five years to year-end 2009, the annualized growth rate was 6.1% for the 300 largest funds and 6.5% for the top 20.
“The highest-level view is that times have never been tougher for these funds — they are all very concerned about their respective futures,” said Roger Urwin, Reigate, England-based global head of investment content at Willis Towers Watson. “For a long time — particularly 1985 to 2005 — those funds led a charmed life, but it is right to say things have never been tougher for them. The stability of the (defined benefit) system has been brought into doubt.”
The top 300 funds lost 3.4% of their value in 2015, with total assets dropping to $14.8 trillion. In 2014, growth was 3.4%. These funds represent 42% of total global retirement assets, as measured by Willis Towers Watson's Global Pensions Asset Study, down from 43.1% in 2014.
The volatility in growth of these assets is not a surprise, given current levels of economic and political uncertainty, added Mr. Urwin. “The context of market changes since the global financial crisis is one in which record-low interest rates have supported a lot of liquidity in the system: equity markets have done well, bond markets have done even better given continuing low interest rates. All of that has created fairly decent performance up until 2014.”
Mr. Urwin reinforced the need to consider weak annualized growth over five years, rather than focusing on 2015's poor year. He said 2015 was “well within recent volatility ranges. ... Of more concern is that the five-year trend is quite weak. These funds need 5% to 8% growth to be comfortable and to make progress — and 3.5% annualized over five years is a weak return. There is definitely a decline on average across the group in their solvency and creditworthy statuses.”