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World’s Largest Pensions Expanded Last Year in Return to Growth

Japan’s Government Pension Investment Fund tops Willis Towers Watson’s annual ranking of the biggest pension funds globally.

  • Amy Whyte

The world’s largest pension funds increased their assets to $15.7 trillion last year, posting positive results across major asset classes to recover from 2015’s decline, according to Willis Towers Watson.

The London-based consulting firm said this week that the 300 biggest pensions saw assets under management rise 6.1 percent in 2016, after tumbling 3.4 percent the year before. The top 20 funds increased assets by 7.1 percent to $6.3 trillion.

Among these giants are the world’s largest asset owner, Japan’s $1.2 trillion Government Pension Investment Fund, and the $893.1 billion Government Pension Fund in Norway. The United States’ Federal Retirement Thrift, the largest defined contribution plan with $485.6 billion of assets, ranks as the third biggest pension fund, while South Korea’s national pension fund and Dutch pension ABP round out the top five with more than $400 billion under management each.

"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,” Roger Urwin, global head of investment content at Willis Towers Watson, said in the firm’s statement about its findings.

The 300 largest pension funds represent nearly a quarter of all investable assets based on Boston Consulting Group’s estimate that global assets under management totaled $69.1 trillion last year. The bulk were concentrated among sovereign and public-sector pension funds, representing 68.4 percent of the top 300’s net worth.

While these giant pension funds make up a huge source of cash for asset managers, many have begun cutting external managers in favor of managing assets internally. Research firm Cerulli Associates said earlier this year that the insourcing trend has become so large among U.S. funds that 43 percent of investment consultants fear losing business due to large investors bringing money in-house.

[II Deep Dive: U.S. Pensions Aim to Be More Like Canadian Funds]

For example, Ted Eliopoulos, chief investment officer of the California Public Employees’ Retirement System — the seventh largest pension, with $306.6 billion under management — told Bloomberg in January that the long-term goal is for CalPERS to manage 75 percent to 80 percent of its assets in-house. Currently, the fund manages roughly 70 percent of its assets internally.

Last year, the 20 largest pensions had the bulk of their assets invested in stocks and bonds, according to Willis Towers Watson. On average, these investors allocated 41.7 percent of their portfolios to equities and 37.2 percent to fixed income, with the remaining 21.1 percent in alternative investments and cash.