Asia-Pacific sovereign pension funds move up in asset rankings

Most Asia-Pacific sovereign pension funds have moved up the global 300 ranking of pension funds conducted by consulting firm Watson Wyatt Worldwide together with US investment publication Pensions & Investments.

Eight Asian pension funds, of which five are sovereign funds, made it into the top 20 in 2008 with their combined assets representing around half the total of the top 20 funds. 

Taiwan's Postal Savings Fund moved up to rank 8 from 14, making it a new entrant in the top 10. Japan's Government Pension has remained in the top position for the sixth straight year with $1.28 trillion in assets.

"Many government-run pension funds in Asia generally maintain a conservative asset allocation, with substantial exposure to fixed income," says Naomi Denning, Watson Wyatt's head of investment consulting for Asia-Pacific. "Consequently, these funds were not hit as hard by the global financial crisis as funds in the US and Europe in 2008. However, the challenge facing many pension funds in the region is how to cope with the changing investment environment."

Three Asian sovereign pension funds, including Singapore's Central Provident Fund (up to 16 from 22), Malaysia's Employees Provident Fund (up to 18 from 23) and Taiwan's Labour Pension Fund (up to 94 from 138) showed positive growth and entered the top tier for the first time. Korea's National Pension fell to 6 from 5 last year, however.

Other sovereign funds in the region that also moved up in rankings include Australia's Future Fund (to 52 from 66), China's National Social Security Fund (to 24 from 38) and Thailand's Government Pension Fund (to 222 from 241).

Denning notes that large pension funds, notably the top sovereign funds, have been prioritising governance to build long-term investment frameworks and develop decision-making structures that take advantage of new investment ideas. They have also used their size to their advantage by ensuring their various activities add up to a value proposition for beneficiaries, she says. Among other things, she adds that these funds continue to set the benchmark in most aspects of investment and provide an insight into how to match liabilities during unstable economic times.

The total assets of the world's largest 300 pension funds fell by 13% in 2008 to $10.4 trillion, down by around $1.5 trillion from last year's figure. The top 20 funds (constituting over 40% of global pension assets) performed better than the remaining funds, falling by only 4% compared to a decline of 13% by the rest of the funds. Of the 300 funds in the ranking, 136 are either sovereign funds (23 funds) or belong to the public sector. Of these, 10 are Asia-Pacific sovereign funds totalling $2 trillion and accounting for 20% of total assets in the research.

The research study shows that despite last year's fall in assets, compound annual growth during the past five years is still around 10%. The region with the highest compound annual growth rate (CAGR) during this period is Asia-Pacific (19%) and the lowest is North America (4%), with Europe having a growth rate of 12%.

"The world's largest pension funds were not exempt from the economic crisis and have been set back a number of years," Denning says. "While, over a five-year period, they still show impressive growth, results in aggregate during the last decade have been more volatile. So despite having fared better than many other funds, they will now be focusing even more on risk management and reassessing their governance arrangements to ensure investment returns are more secure in future."

According to the research, North America has been growing at a slower pace in recent years, allowing the rest of the world to catch up. Both the US and Canada now account for 45% of total assets, down from 58% in 2003 due to a weak dollar and various significant developments around sovereign pension funds elsewhere.

The research also shows that continuing high asset growth during the past five years has pushed the Asia-Pacific region ahead of Europe ($2.5 trillion) for the first time with assets of around $3 trillion, while the US remains top with $4.7 trillion. In Asia Pacific, assets held by Taiwanese funds grew at the fastest rate during the five-year period to the end of 2008, 14% in dollar terms, followed by Australia with 13%. Asia-Pacific was the only region to show any growth (11%) in 2008.

Asia-Pacific sovereign pension funds in the global 300 ranking