Other highlights from the report include:

Asset data for the United States in 2012
  • The ratio of US pension assets to Gross Domestic Product (GDP) increased from 84% in 2002 to 108% in 2012.
  • In the past decade, US pension funds have doubled their exposure to alternative assets to an average of 20% from 10%.
  • Equity allocations for US pension funds have fallen from 60% in 2007 to 52% in 2012.

Global asset data for the P13 in 2012
  • The ten-year average growth rate of global pension assets (in local currency) is over 8%
  • The largest pension markets are the US, Japan and the UK with 57%, 13% and 9% of total pension assets, respectively
  • All markets in the study have positive ten-year compound annual growth rate (CAGR) figures (in local currency)
  • In terms of ten-year CAGR figures (in local currency terms), Hong Kong and Brazil have the highest growth of 14% followed by South Africa (13%) and Australia (11%). The lowest are Japan (2%), France (2%) and Switzerland (4%)
  • Ten-year figures (in local currency) show the UK and Netherlands have both grown their pension assets the most as a proportion of GDP by 42% to reach 112% and 156% of GDP respectively, followed by Australia (up 32% to 101% of GDP), the US (by 24% to 108% of GDP) and Hong Kong (up 23% to 40% of GDP).
  • During this time South Africa’s ratio of pension assets to GDP has fallen by 2% to 64% of GDP.

Asset Allocation for the P7
  • Bond allocations for the P7 markets have decreased by 7% in aggregate during the past 18 years (40% to 33%). Allocations to equities have fallen by 2% (to 47%) during the same period.
  • Equity allocations in the UK have fallen from 61% in 2002 to 45% in 2012. In the Netherlands allocations fell from 37% to 27%, during the same period while Canada’s allocation to equities fell from 51% to 43%. Australia maintains the highest allocation to equities at 54% followed by the US on 52%, while the Netherlands overtakes Japan (55%) as having the highest allocation to bonds of 57%.
  • Allocations to other (alternative) assets, especially real estate and to a lesser extent hedge funds, private equity and commodities, for the P7 markets have grown from 5% to 19% since 1995
  • In the past decade most countries have increased their exposure to alternative assets with the UK increasing them the most (from 3% to 17%), followed by Switzerland (18% to 30%), Canada (13% to 23%), the US (from 10% to 20%) and Australia (14% to 23%). Whereas allocations to alternatives have fallen in the Netherlands from 19% to 16% during the same period.

“Jittery markets and heightened risk awareness continues to make asset allocation very challenging as companies and trustees balance such priorities as long-term de-risking, short-term market opportunities, rebalancing, and maintaining a strategic asset allocation mix,” said Chris DeMeo, head of investment, Americas, at Towers Watson. “In terms of specific asset classes, we don’t think that bonds represent great value at the moment - but for those that think equities represent relatively better value, it is challenging to know what to do about it when the goal for many funds is to reduce risk overall. So many funds are buying fewer bonds than before, and those which are considering adding risk to their investment portfolios are most often diversifying into alternative assets rather than simply buying equities.”

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