SINGAPORE (Sept 2): Assets under management (AUM) at the world’s 300 largest pension funds dropped in value by 0.4% to US$18 trillion, as compared to a 15.1% increase in 2017, according to the latest World 300 research from the Thinking Ahead Institute.

Furthermore, the value of the top 20 pension funds’ AUM fell for the first time in seven years, by 1.6% in 2018, which is equal to 40.7% of the total AUM in rankings. However, the top 20 funds’ growth rate of 4.7% during the period 2013 to 2018 remained higher than the growth rate of 3.9% for the top 300 funds during the same period.

Among the top 300 funds, defined contribution (DC) assets increased by 5.1% during 2018, while defined benefit (DB) assets declined by 0.2%. Of the total AUM, DB funds accounted for 64.7%, unchanged from the previous year.

Across the region, DB funds slightly decreased, except for Europe where the same level was maintained. DB plans are prominent in Europe, North American and Asia Pacific, while DC plans dominate 70% of assets elsewhere, especially in Latin American countries.

Meanwhile, the share of reserve funds (those set aside by a national government against future liabilities) decreased by 9.5%, whilst hybrid fund assets (those with both DB and DC components) decreased by 4.6%.

Sovereign and public sector pension funds account for 68.5% of the total AUM in the ranking, with 145 funds in the top 300. Sovereign pension funds represent US$5.1 trillion in assets, while sovereign wealth funds account for US$7.9 trillion.

In terms of AUM, Asia Pacific is the second largest region with funds accounting for 26.2% of all assets in the research, trailing behind North America at 45.2% and ahead of Europe at 24.9%.

In terms of annualised growth rate, Asia Pacific increased by 5.2% during the period 2013 to 2018, close behind North America which experienced the fastest growth at 5.8%. In contrast, Europe’s growth remained almost flat at 0.5%.

Bob Collie, Head of Research for the Thinking Ahead Group, says, “A tougher market environment in 2018 meant AUM growth paused, but the underlying trend remains one of growing pension markets worldwide. The pace of change in the investment world is a challenge, and scale is a huge advantage in a lot of ways. Many of the most interesting and important developments start with the largest funds, and as new investment ideas like the total portfolio approach and universal ownership gain traction in these organisations, they influence the whole market. It’s particularly notable that a majority of the largest funds are now highlighting the importance of sustainability. ESG factors are now significant financial considerations. Beyond that, there’s also an evolving recognition of the role large investors play within society, and the responsibility that comes with it.”

Jayne Bok, Head of Investment in Asia at Willis Towers Watson says, “Despite macro-economic and global trade headwinds, Asia is still a growing region with a young population, and its long-term growth trajectory remains positive. However, we should expect a general slowdown in growth in line with global markets.”