The assets of the top 300 pension funds increased by 10 per cent in 2023, although they are yet to return to the previous high seen in 2022, research from the Thinking Ahead Institute has revealed.

According to the report, the top 300 pension funds’ assets under management (AUM) rose from USD 20.6trn at the end of 2022 to USD 22.6trn at the end of 2023, as markets stabilised somewhat from the high level of global economic uncertainty seen the previous year.

In particular, the analysis found that growth remained faster among the biggest schemes, as the top 20 largest pension funds in the world recorded an increase in assets of 12 per cent during the last year, outpacing their smaller peers.

This faster growth also holds true over time, with a compound annual growth rate for the last five years of 5.4 per cent for the top 20 pension funds compared to 4.7 per cent for the entire top 300.

The Government Pension Investment Fund of Japan (GPIF) also remained the largest pension fund in the world, with AUM of USD 1.59trn, a position it has held since 2002.

The gap is closing though, as the Government Pension Fund of Norway is just 0.5 per cent smaller with assets of USD 1.58trn, with TAI warning that this scheme may claim this top spot next year after recording 22 per cent growth in assets in the 12-month period.

However, the Thinking Ahead Institute emphasised that whilst the growth in assets across the global pensions landscape marked a “significant turnaround” from the 13 per cent fall in assets experienced in 2022, assets are still not yet back to the record highs seen in 2022.

Thinking Ahead Institute director, Jessica Gao, also warned that while it is "positive" to note a return to growth, the combination of a more uncertain macroeconomic environment and rising geopolitical instability means there is increasing complexity in the investment landscape.

She continued: “Last year was characterised by the rising inflation and interest rate environment, both of which have since tapered off; but the outlook is by no means certain.

“Although the first half of 2024 has offered a degree of stability, uncertainty is still high, with volatility persisting in the global economy, heightened by geopolitical developments including multiple significant elections.

“We previously warned of the need to address rising systemic risk, where an entire system (like climate) malfunctions, puts emphasis on the need for forward-thinking and re-positioning strategy.

“Since setting the first net-zero commitments in 2020, the asset management industry has faced this challenge under significant time pressure. Four years later, it has developed into a state that is emergent but unfortunately not yet fully formed.”

More broadly, the report found that defined benefit (DB) schemes continued to hold the largest share of assets, accounting for 61 per cent of total disclosed AUM, followed by DC fund assets (26 per cent) and Reserve Funds (12 per cent).

However, whilst DB funds accounted for a majority share of assets in North America (72 per cent), Asia-Pacific (63 per cent) and Europe (46 per cent) in 2023, DC plans dominated other regions (68 per cent), particularly Latin America.

Equities had the highest weighting, as the top 20 largest pension invested an average of 43 per cent of their assets in equities, while 35 per cent was held in fixed income and 22 per cent in alternatives and cash.

However, the report showed a "significant" regional divergence, in the asset allocation decisions by these largest schemes.

In particular, Europe had the lowest weighting to equities at 31 per cent compared to bonds at 58 per cent; North America had an equity weighting of 45 per cent and 23 per cent in bonds, while in Asia Pacific it was fairly balanced with 45 per cent in equities and 48 per cent in bonds.

This article originally appeared on our sister title, European Pensions.

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