The assets under management (AUM) of the world’s top 300 pension funds increased 11.5% to US$21.7 trillion ($29.1 trillion) in 2020, despite pandemic and uncertainty, according to research.
Research by the Thinking Ahead Institute (TAI) and US investment newspaper ‘Pensions and Investments’ found North America was the largest region in terms of AUM and number of funds, accounting for 41.7% of all assets in the study, and was followed by Asia-Pacific (27.5%) and Europe (27.5%).
On the other hand, the Asia-Pacific region experienced the largest annualised growth rate over the last five years at 9.9%, while Europe and North America had annualised growth rates of 7.8% and 7% respectively. Latin American and African funds’ AUM increased 5.7% during the same period.
Overall, US continued to have the largest number of funds in the top 300 ranking (138), followed by the UK (23), Canada (18), Australia (16) and Japan (14).
The number of Australian funds remained the same, with the biggest change being Telstra Super having joined the list, while VicSuper had dropped from the ranking on a standalone basis because of its merger into Aware Super (previously known as First State Super) during the year.
This was also a significant contributor to Aware Super’s 49% growth in AUM and moving 22 places up the rankings.
This meant that the average growth across the rest of the Australian funds was a strong 15%, reflecting robust investment returns and in, a number of cases, further merger activity. Following this, Australian funds moved up the global ranking eight places on average as a result.
Potential for an Australian fund to enter top 20
Martin Goss, investments director at Willis Towers Watson Australia, said the Australian super fund landscape was rapidly evolving, with regulatory changes accelerating merger activity across small, medium and large funds.
“As this activity continues, we could see two or three Australian funds break into the top 20 funds in the ranking over the next five years,” Goss said.
“Consistent with this growth, we are seeing the largest funds adapt their investment and operating models to manage and take advantage of their increasing scale, with meaningful internalisation of investment management occurring at a number of funds as well as an increasingly global focus.”
Future return considerations
The research also found that overall pension fund boards were increasingly focused on managing many of the headwinds that have arisen from a ‘new normal' of lower-for-longer interest rates, which has prompted concerns around solvency and led some schemes to increasingly stretch their risk budgets in order to meet return targets.
Additionally, managing rising environmental, social, governance (ESG) expectations also created a set of challenges and opportunities for the industry.
Marisa Hall, TAI co-head, said: “The shift in focus to meet the investment challenges of tomorrow – such as achieving net-zero targets and ensuring real-world impacts – is prompting an increasing number of pension fund boards to adopt a systems-thinking approach as they revamp their people, investment and business models.
“Boards which are successfully managing this transition have employed the power of technology, governance and culture ingeniously. Other pension fund boards are taking notice.”
Largest Australian super funds by AUM in the world’s top 300
Source: Willis Towers Watson