Global institutional pension fund assets reached a new record of $36 trillion in 2014, according to research from professional services company, Towers Watson.
Pension assets now amount to around 84% of global GDP, a 30% increase since 2008.
Assets grew by over 6% during 2014, a slight decrease on the 10% growth in 2013, but still continuing an upward trend that started in 2009, according to the Towers Watson’s Global Pension Assets Study.
The research also shows that defined contribution (DC) assets grew rapidly in the ten-year period to 2014, with a compound annual growth rate of 7%, against a rate of just over 4% for defined benefit (DB) assets.
As a result DC pension assets have grown from 38% of all pensions assets in 2004 to 47% in 2014 and are expected to overtake DB assets in the next few years.
Roger Urwin, global investment director at Towers Watson, says: “The inexorable shift to DC, which we believe will soon constitute the majority of global pension fund assets, means it is becoming the dominant global pensions model.”
When looking at asset allocation, the study found that weight of domestic equities in pension portfolios fell, on average, from 65% in 1998 to 43% in 2014.
During the past ten years US pension plans have maintained the highest bias towards domestic equities, while Canadian and Swiss funds remain the markets with the lowest allocation to the asset class. UK exposure to domestic equities has more than halved since 1998.
In terms of fixed income, Canadian and US funds have retained a very strong home bias since the research began, while Australian and Swiss funds have reduced exposure to domestic bonds significantly since 1998. In the UK, pension funds have increased allocations to bonds from 24% to 37% since 2004.
Allocations to alternative assets – especially real estate – in the larger markets have grown from 5% to 25% since 1995. In the past decade most countries have increased their exposure to alternative assets, with Australia increasing them the most.
Urwin adds that this shift away from domestic equities is one indication of an increased focus on risk management, an idea supported by the increasing diversification of assets in portfolios.
©2015 funds europe
