GLOBAL - Global pension assets have bounced back, registering their strongest performance since 1999, with total institutional pension fund assets in 11 major markets growing by more than 12%.
Research by Watson Wyatt shows that global pension fund assets have resumed pre-2000 levels, in a year that saw the US dollar lose close to 15% of its value and world stock markets returned 31% in US$ terms.
Roger Urwin (pictured), global head of the investment practice at Watson Wyatt, said: “It is reassuring to see the three-year trend of shrinking assets and rising liabilities has been checked and a better trend may be emerging. However, the damage to global pension funds has been severe and recovery to full funding levels, even if equity markets continue their upward movement, is very likely to be several years off.”
Urwin points out that in countries with maturing pension funds there seems to be a gradual move to lower equity allocations, driven by the need to pay higher pension amounts to ageing populations through cash-flow generating assets such as bonds.
“Similarly, the quest for alternative sources of alpha is increasing and will also persuade funds and sponsors that equities may not be worth the risk. These factors work over different time scales in different markets, but overall we expect pension funds strategy to continue to have equities as a key asset class, but not necessarily the dominant asset class,” Urwin added.
According to the survey, global pension fund assets have increased by 7% per annum over ten years, but more than three-quarters of that growth occurred in the more favourable market conditions of the five years from 1993 to 1998.
The robust stock market recovery from March 2003 has boosted the equity-heavy Anglo-American markets - the US, Canada and the UK - with an average growth of around 16% in local currency terms while pension funds in Japan, France and Germany, which have more bond-oriented policies, were only able to achieve gains in single figures.
Roger Urwin said: “Clearly, long-term growth and sustainability is of most importance, and over a ten-year period the Australian pension fund growth has been exceptional, with strong growth also in the US and Netherlands.”
The 11 major markets included in the survey are Australia, Canada, Germany, France, Hong Kong, Ireland, Japan, Netherlands, Switzerland, the UK and the US. The three largest pensions markets remain the US, Japan and the UK.
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