The good times appear to have resumed in 2016 for the world's largest asset owners, with the latest survey by Pensions & Investments and Willis Towers Watson PLC showing assets of the 300 largest retirement funds growing 6.1% to $15.73 trillion.
Thanks in large part to strong gains in equity markets, the 20 largest funds in the world grew 7.1% to $6.35 trillion for the year ended Dec. 31, increasing their relative size to 40.3% of total assets.
The MSCI All Country World index was up 7.87% for the year, with the U.S. stock market showing particular strength. The Russell 3000 gained 12.74% in 2016, in sharp contrast to the MSCI Europe's loss of 0.4%.
The 2016 figures compare to a 3.4% decline in total assets for 2015 and a 2.2% drop among the top 20 asset owners that year. In 2015, the 20 largest funds accounted for 40% of total assets.
But behind strong investment gains is a less positive story when it comes to plan deficits — something the study does not address.
"Positive equity returns by and large have kept these funds doing well, but solvency has been under a lot of pressure," said Roger Urwin, global head of investment content at Willis Towers Watson in London. "The vast majority of pension funds are underfunded."
With the expectation that interest rates will increase, which comes with higher discount rates, Mr. Urwin said plans "will stage something of a recovery ... but it won't necessarily do enough to put them into a very solid state. I wouldn't expect most pension funds to be in a solid state in five years time."