Assets under management with Asia Pacific's largest pension funds rose by 7% from a year earlier to US$3.7 trillion at the end of 2016, lifting the overall ranking of the region's sovereign and public sector pension funds by asset size, according to the latest global 300 research from Willis Towers Watson, the leading global advisory, broking and solutions company.
In a return to growth following a 3.4% decline in 2015, based on asset size, Asia Pacific pension funds outperformed those of the world’s largest pension funds overall. The latter increased in value by 6.1% in 2016, representing a total of $15.7 trillion, according to the research.
Among Asian sovereign and public sector pension funds in the research, China’s National Social Security Fund retained its previous position in the ranking at position 6. India’s Employees’ Provident moved up to position 21 (from 27), Taiwan’s Labour Pension Fund to position 35 (from 46), Taiwan’s Labour Insurance Fund to position 174 (from 193) and Vietnam’s Social Insurance Fund to position 185 (from 204).
The research reveals that each of these funds had stronger asset growth – more than 10% – than their peers from the previous year's figure.
Ms Jayne Bok, Head of Investments for Asia at Willis Towers Watson, said: “Positive market returns for all major asset classes, especially equities, helped boost pension assets last year, despite unexpected events that triggered high global market volatility. Asian funds with high allocation to equities performed well in 2016, largely driven by volatility.
“But in a highly competitive and fast-changing world, Asian funds with a long horizon should evaluate their equity portfolio characteristics to increase the chance of outperformance on a sustainable basis to meet their return objectives. Factors that matter include, for example, the extent of home bias, the degree of a portfolio resembling a market index, the constraint imposed, the structure of managers, and costs and implementation routes.”
According to the research, 31 Asia Pacific sovereign and public sector pension funds had combined assets of US$3.7 trillion in 2016 and accounted for around 23.5% of all assets. In addition, the other sovereign and public sector funds (113 in other regions) had assets of US$7.1 trillion and accounted for 44.9% of all assets. Private sector industry funds (58) and corporate funds (98) account for 13.5% and 18.1%, respectively, of assets in the research.
The world’s top 300 pension funds together now represent 43.2% of global pension assets, up from 42.5% in 2015, as estimated against figures from Willis Towers Watson’s Global Pensions Asset Study.
The US has highest share of AUM among top 300 funds, followed by Japan By individual region in the top 300, North American funds showed the most noticeable annualised growth rate over the last five years, growing by 6.7% during the period. Funds from Europe and Asia Pacific regions showed annualised growth rates of 3.1 % and 2.8% respectively according to the research.
The US has the largest number of funds among the top 300 (134), followed by the U.K. (26), Canada (18), Japan and Australia (both 16).
Lower-return environment to continue
Ms Bok said: “If asset owners are to successfully capture the long-term premium, it is imperative that they continue to expand their skill-sets, particularly in a continued lower return environment which looks set to remain a feature of the industry going forward. A central characteristic of leader funds has been their ability to innovate, rather than to rely on practices which may have worked in the past, whether that be through more streamlined asset allocation, uses of factor strategies and other smart betas and better methods of accessing private markets. Increased interest in sustainability, both in integrated ESG practices and stronger stewardship practice, is one further innovation that was notable in 2016.”