"When you see corrections in equities and bonds as we have seen over the last year, it will have a knock-on effect on pension funds," she said.
While the drop can not only be attributable to market correction but also currency effects, capital markets will be the "more significant contributor," she added.
Ms. Hall noted that the pandemic combined with loose monetary policy led to governments having to control inflation.
"What that means is that asset classes are under pressure, particularly asset classes that require borrowing," she said.
In 2022, allocations to equities fell to 42% from 45% compared to a year earlier. Allocations to bonds declined to 32% from 34% in 2021.
Despite a challenging year, investors continued to allocate to private markets and alternatives, which were 23% of total allocations, up from 19% in 2021. Cash increased to 3% from 2% a year earlier.
The institute noted that since 2002, overall equity allocations have shrunk from 50%, and the allocation to bonds has decreased from 38%.
Allocation to other assets, such as real estate and other alternatives, has increased from 9% in 2002.
The seven largest markets — Australia, Canada, Japan, the Netherlands, Switzerland, the U.K. and the U.S. — collectively continue to account for 91% of retirement assets among the 22 markets in the study.
Over one year, assets in dollars in the largest seven markets fell by an annualized rate of 17.1%. Over five years, assets grew by an annualized rate of 2.5%.
The U.S. remains the largest pension market followed by Japan and Canada. Together, these three markets account for over 76% of pension assets in the largest 22 pensions markets.
The $30.43 trillion in U.S. retirement funds alone accounts for 64% of the 22 markets. Assets were down from $35.01 trillion in 2021.
Also among the largest markets, the U.K. dropped to fourth place in 2022 after the U.S., Japan and Canada. Due to a crisis caused by liability-driven investment strategies used by U.K. pension funds, U.K. assets fell to $2.56 trillion in 2022 from $3.85 trillion in 2021.
"The U.K. slid into fourth place because we had a liquidity crisis," Ms. Hall said. The September increase in U.K. interest rates forced U.K. pension funds to sell assets at significant losses in order to meet the liquidity calls required by the fall in leveraged LDI values.
The Thinking Ahead Institute is a non-profit investment research group of institutional asset owners and asset managers managed by Willis Towers Watson.