Pension funds face largest decline of assets in 20 years

The decline was at the same level as the drop in 2008

Pension funds face largest decline of assets in 20 years

300 of the world’s largest pension funds experienced a decline in their assets for the first time since 2018, shown in this year’s Global Top 300 Pensions Funds list by WTW’S Thinking Ahead Institute, as reported by Yahoo! Finance.

The research found that the decline (12.9%) was greater than what was seen in 2008 (12.6%), which was during a time when there was a global financial crisis. The fall in 2008 was said to be the fastest annual decline that was recorded in the 20 years that the study had been conducted until now.

“We sounded a note of caution last year when reporting on a previous record. In last year’s research, we anticipated rising inflation and interest rate pressures, as well as the potential for slowing growth the following year.” said Jessica Gao, director at the Thinking Ahead Institute.

It was also found that the combined assets of the pension funds reached a total of $20.6 trillion this year which was a noticeable decrease from 2021’s $23.6 trillion.

“2022 recorded historic levels of economic uncertainty and market instability. A convergence of regime, geopolitical and systemic risks magnified in a VUCA-fest (characterised by volatility, uncertainty, complexity, and ambiguity), challenging pension funds to navigate and adapt within this rapidly changing environment.” explained Gao.

 The countries that had the largest number of pension funds fall out of the top 300 were the UK and Japan, with the former attributing their decline to its gilts crisis, market instability, and the shift from defined benefit pensions to defined contribution plans.

The pension funds that were in the top 300 represented 43% of the global pension assets in 2022 which was increase from the 41.1% in 2021, as said by the Global Pension Assets Study by the Thinking Ahead Institute.

North America held 45.6% of the assets in the top 300 pension funds while Europe held 24.1% and Asia-Pacific had 26.4%. The Government Pension Investment Fund of Japan (GPIF) held the spot of being the world’s largest pension fund with the asset under management (AUM) being around $1.4 trillion. The sole new entry to the top 20 funds for 2022 was the Employees’ Provident Fund of India.

Gao said that technological advancements and the rise of artificial intelligence had been influencing asset owners.

“Balancing the need to catch up with asset managers’ AI-driven insights while retaining control over their investment mandates underscores the critical role of effective collaboration and strategic adaptation for AOs in an investment ecosystem with increasingly influential technologies.” she explained.

“While market performance has improved from 2022 to 2023, we continue to proceed with a high degree of caution.”