The 19 countries with largest pension funds in the world ended 2015 with assets under management equivalent to 35.32 trillion dollars according to the Global Pension Assets Study 2016 prepared by Willis Tower Watson. The study considers pension funds with both benefit and defined contribution schemes.
The countries analyzed are: Australia, Brazil, Canada, Chile, France, Germany, Hong Kong, India, Ireland, Japan, Malaysia, Mexico, Netherlands, South Africa, South Korea, Spain, Switzerland, UK and US. The largest markets are US, UK and Japan, while the smaller ones are Hong Kong, India and Spain.
7 of these 19 countries represent 93% of the assets under management analyzed as well as relatively high proportions to their countries’ GDP. US is the country whose Pension funds manage the largest assets at $21.78 trillion, representing 121.2% of their GDP; followed by the UK with $3.20 trillion dollars and 111.9% of GDP; and Japan with 2.75 trillion dollars and 66.7% of GDP.
In fourth place is Australia with $1.49 trillion and 119.6% of GDP followed by Canada with 1.53 trillion dollars and 97% of GDP; and the Netherlands with $1.34 trillion and 183.6% of GDP. Finally, in the seventh position is Switzerland with $804 billion and 118.7% of GDP.
In LATAM Chile manages 159 billion which represents 66.4% of their GDP; Mexico’s 177 billion are equivalent to 15.2% of their GDP and Brazil with $180 billion and 10% GDP, though Brazilian assets only include those from closed entities, highlights the study.
In terms of growth, Willis Tower Watson mentions that the assets of major pension funds had an average contraction of 0.9% in dollar terms in 2015. In many cases this contraction is explained by the movement of currencies against the dollar. In 2015 the Brazilian real depreciated 31.1%, the South African currency -24.7%; the Malaysian Ringgit -18.5%; Canadian dollar -16.1%; the Mexican peso -14.6% and the Chilean peso -14.5%.
The 7 largest pension funds at the end of 2015 had a distribution of 44% in equities; 29% bonds; 24% in other assets including real estate and alternatives and 3% in cash. If the figures are compared in a 20 year horizon it can be seen that the participation of Pension funds in alternative assets has increased from 7% in 1996 to 24% in 2015. While equities have lowered from 52 to 44% and debt from 36 to 29%.
The above percentages are an interesting comparative parameter for the composition of the portfolios of the Afores in Mexico, which have 20% of their assets invested in equities (13% international and 7% national); 74% in debt ((53% government, 20% national private debt and 1% international debt), and only a 6% (4% Structured, 2% Mexican REITS) in alternative assets. While the percentages have increased for Mexico there is still a wide margin to reach international standards, and to do so, both a healthy supply of alternatives, and the opening of the investment regime are key.
The Compound Annual Growth Rate (CAGR) in dollars, for Pension funds in the last 10 years (2005-2015) grew on average 5.1%. With rates above 8% are Mexico with 9.2%; Australia with 9.1% and Hong Kong with 8.8%.
According to Willis Tower Watson, the countries that increased the most their proportion against GDP over the past 10 years were the Netherlands, which went from 109% in 2005 to 184% in 2015; Australia going from 84% to 120%; and the UK from 79% to 112%. In LATAM Chile steped from 61 to 66% and Mexico increased from 8 to 15% while Brazil dropped from 15% in 2005 to 10% in 2015.
Column by Arturo Hanono