- The world’s largest 300 pension funds' total assets dropped by more than 3% in 2015 (compared to growth of over 3% in 2014) to a sum of $14.8 trillion. And while this is the first drop in assets since the beginning of the 2008 recession, cumulative asset growth was almost at 19% during that time, according to a new research report.
- The research, from Pensions & Investments, a trade newspaper, and Willis Towers Watson also found that by individual region, North America had the highest five-year compound growth rate (6%) compared to Europe (around 4%) and Asia-Pacific (around 1%). The report also found that those 300 pension funds account for 42% of global pension assets.
- When it comes to the type of plans and growth, during 2015 only "hybrid" plan assets grew, by almost 14%, while all other fund types dropped. For example, defined benefit (DB) plans assets fell nearly 5%, defined contribution (DC) plans by over 2%, and reserve funds by 0.3%.
Steve Carlson, head of Investment, North America, at Willis Towers Watson, says ongoing volatility shows how tough it is for today's pension funds to meet their objectives. He adds that one way to avoid it is through solid investment governance, which he says will deliver the best competitive edge and success in the ever-evolving mission of trying to "pay benefits securely, affordably and in full.”
Over the past five years, he adds, funds that are doing the best are characterized by diversified portfolios that perform well in times of stress and a "focus on total rather than relative returns." HR leaders and benefits leaders also should know that another differentiator of leading funds is the ability to innovate or be an early adopter.
Employers of course want their employees to have enough income to retire comfortably, and want to help them enjoy the right retirement income. Unfortunately, many continue to offer plans that aren’t nearly as effective at reducing long-term risk. From the research, it seems as though looking into hybrid plans might be worthwhile.