13 major global pension markets see 4% asset rise to $27.5 trillion

Retirement assets in the 13 major global markets increased 4% to a record $27.5 trillion in 2011, according to Towers Watson & Co.'s annual Global Pension Assets Study.

Global pension fund assets have now grown at more than 6% on average annually since 2001, when they were valued at $15 trillion.

The U.S. accounts for 59% of total pension assets, followed by Japan at 12% and the U.K. at 9%, according to the study.

Despite the growth in assets, fund balance sheets weakened globally in 2011 because of increased liabilities.

Pension assets amount to 72% of global GDP, down from 76% at the end of 2010, according to the study, which can be found on the firm's website.

“People are actually plunking lots of money into pensions and devoting kind of a lot of resources to fund the global pension system,” Carl Hess, Towers Watson global head of investments, said in an interview. “It's a good sign efforts are being made.”

Defined contribution assets for the seven largest markets—U.S., U.K., Japan, Netherlands, Canada, Australia and Switzerland—now make up 43% of global retirement assets, up from 41% in 2005 and 38% in 2001. The U.S., Australia and Switzerland are the only countries with more DC assets than DB. In the past 10 years, the compound annual growth rate of DC assets was 8% against 5% for DB assets.

Bond allocations for the seven major markets decreased to 37% from 40% in the past 16 years. Equity allocations have fallen eight percentage points to 41% in the same period.

In the U.S., equity allocations have decreased to 44% from 65% in the last 10 years, while in the U.K., they decreased to 45% from 67%, including 10 percentage points in 2011 alone.

Mr. Hess does not expect to see much of a change in fixed-income allocations and said pension funds have been trending toward a “globalization” of equity portfolios.

“The trend toward alternatives is not surprising, but is pretty universal,” Mr. Hess said. “Assets are going up and that's good, but diversification is also going up and that's really good.”

Allocations to alternatives for the seven largest markets have increased to 20% from 5% since 1995. The U.S. funds increased its alternatives exposure to 25% from 5% in the last decade.

“The volatility in markets and the heightened risk awareness associated with possible sovereign defaults continues to make asset allocation incredibly challenging as companies and trustees balance such priorities as long-term derisking, short-term market opportunities, rebalancing or maintaining a strategic asset allocation mix,” said Mr. Hess in a statement.

Kevin Olsen is a reporter for Pensions & Investments, a sister publication of Business Insurance.