The world’s 300 largest pension funds grew by almost 10 per cent in 2012 in US dollar terms to US$14.0 trillion, while Australian funds inside the global top 300 grew by 20 per cent, according to The P&I / Towers Watson global 300 research.
Martin Goss, senior investment consultant at Towers Watson in Australia said the driving factor behind the growth in Australian funds was “their relatively high allocation to equities and other growth assets”, which performed very strongly in 2012.
“Other contributing factors were a 2 per cent strengthening of the Australian dollar against the US dollar over calendar year 2012 and continuing net inflows to most of these funds.”
Australian funds would also have benefited relative to global peers due to compulsory super, although this was not addressed in the report. The analysis also did not discuss to what extent acquisitions aided the growth of the Australian funds in the top 300, but several of the largest recent mergers would not have been caught in the 2012 data period – such as AustralianSuper’s acquisitions of Westscheme (in 2011) and AGEST (2013) and the First State Super / Health Super merger (2011).
Australia had the highest compound growth rate of any country over five years at 13 per cent per annum ahead of Taiwan (11 per cent) but this was partly due to currency appreciation. In local dollar terms, Australia remained in the top five, growing at 9 per cent per annum over five years, behind only Denmark and Mexico (both 11 per cent).
All 15 Australian funds in the survey moved up the rankings in 2012, headed by The Future Fund (up from 33rd in 2011 to 29th, growing its assets from $74 billion to $86 billion) while REST was the biggest mover, up 19 places to 142nd as it grew its assets from $21 billion to $25 billion.
The rise in pension assets globally in 2012 was due to investment market recovery and new cash commitments, Mr Goss said.
“There were many similarities to the year before – bumpy recovery accompanied by occasional hyper-volatility in markets – but with some notable differences, which are cause for some encouragement for the first time in five years,” he added.
Despite the strong year, the annualised growth rate for the 300 funds is just over 3 per cent – “which is probably not enough to ensure they all meet their obligations absent capital injections,” Mr Goss said.
“The recent relative stability is very welcome and should be encouraging for investors – however, they should not become too complacent given that the big issues, like the eurozone crisis, the US fiscal cliff and considerable indebtedness, have not gone away.”
