The world’s largest pensions maintained their approach to alternatives last year as they rode out a more challenging market.
According to Willis Towers Watson’s latest Pensions & Investments World 300 report, the top 20 pension funds in Asia-Pacific, North America and Europe allocated 22 percent of total assets, or $1.6 trillion, to alternatives and cash in 2018 – an amount that was little changed from the figure for 2017.
A tougher market environment in 2018 meant growth in assets under management paused, the report noted, with the total asset value of the top 20 pension funds falling by 1.6 percent over the year. This was the first fall in the top 20 funds’ share of the total since 2012.
Among the top sovereign pensions are the $1.4 trillion Government Pension Investment Fund of Japan, South Korea’s $573 billion National Pension Service and the $377 billion California Public Employees’ Retirement System.
CalPERS, which ranks sixth in the top 20 funds, has an 8 percent target exposure to private equity; its actual exposure stood at 7.1 percent as of June. The pension invested $4.2 billion in fund commitments and co-investments last year. Canada Pension Plan Investment Board, which is eighth in the ranking, has a 23.9 percent exposure to PE against a 21 percent target, according to PEI data.
Overall, the world’s 300 largest pensions had a 0.4 percent decrease in total assets in 2018 to $18 trillion, a reversal of the 15.2 percent increase in 2017.
The report noted that the underlying trend remained one of growth in pension markets worldwide, with scale being an advantage.
“Many of the most interesting and important developments start with the largest funds,” said Bob Collie, head of research for the Thinking Ahead Group, in a statement accompanying the report. “As new investment ideas like the total portfolio approach and universal ownership gain traction in these organisations, they influence the whole market.”
Diversification, sustainability and responsible investment were some of the significant financial considerations of the top 20.
Nearly half pointed to geopolitical tensions as an important element affecting returns. Trade barriers were cited as a significant element of the uncertainty surrounding these tensions.
North America remained the largest region in terms of AUM, accounting for 45.2 percent of all assets in the research. Asia-Pacific was the second largest, making up 26.2 percent of total assets, while Europe was third with 24.9 percent.
Asia-Pacific had an average annualised growth rate of 5.2 percent between 2013 and 2018. North America was slightly ahead, and had the fastest growth rate at 5.8 percent. Europe’s growth remained almost flat, with an annualised average rate of 0.5 percent over the period.