The combined assets under management (AUM) of the 300 largest pension schemes have grown by 50 per cent since 2016 to a record high of USD 23.6trn in 2021, according to research from the Thinking Ahead Institute (TAI).

The survey showed that while total AUM has reached record highs, growth has slowed from 11.5 per cent in 2020 to 8.9 per cent in 2021.

However, the TAI suggested that this "was to be expected after a very strong performance in asset markets over 2020", pointing out that the latest performance is enough to take five-year cumulative growth to 50.2 per cent.

The survey also found that the United States was now home to almost half of the world’s largest pension funds, up from 41.7 per cent at the end of 2020.

European pension schemes, meanwhile, accounted for 25.9 per cent, Asia-Pacific 25.5 per cent, while the remaining 4 per cent were based in Latin America and Africa.

North America's increased global share was attributed to the faster annualised growth in invested assets, which was up 9.2 per cent, compared to 8.3 per cent in Europe.

As a result, the US also accounted for 36.9 per cent of top 300 pension fund AUM and has almost half the funds in the ranking, followed by the UK.

Defined benefit (DB) fund assets continued to dominate amongst the top 300 funds, at 63.5 per cent of the total AUM.

However, the TAI noted that the share of DB fund assets has been declining modestly over recent years, while defined contribution (DC) funds (23.8 per cent), reserve funds (11.8 per cent) and hybrid fund assets (0.9 per cent) are slowly gaining traction.

TAI also found that the top 20 pension funds constituted 41 per cent of total assets, slightly down from 41.8 per cent in the prior year, having grown by 6.6 per cent during the year, compared to 8.9 per cent for the top 300 funds.

However, on a longer-term basis, the top 20 had a higher growth rate, with a compound annual growth rate (CAGR) for the past five years of 8.8 per cent versus 8.5 per cent for the top 300 funds.

On average, the top 20 funds invested approximately 53.5 per cent of their assets in equities, 27.9 per cent in fixed income securities and 18.6 per cent in alternatives and cash.

Commenting on the findings, TAI co-head, Marisa Hall, said: “This is a story of two halves. On the one hand, a new record for the world’s major pension funds illustrates the optimism that defied a global pandemic. Yet on the other, growth is slowing and the long-term dashboard is flashing amber.

“Looking ahead, rising inflation and subsequent central bank action are likely to cause global growth to falter, which may in turn endanger longer term the funding status of pension funds.

“Pension funds are also under immense governance pressure from all sides, with a growing politicisation of ESG in some regions meeting calls for more substantial and urgent climate action.

"The addition of stark short-term economic pressures alongside these structural long-term changes will only add to the difficulty of balancing short-term financial resilience with long-term financial and climate sustainability."

Hall also said that pension fund boards' agendas have "rightly become a guide to the complex strategic challenges facing global markets and economies", suggesting that reading pension funds' annual reports is "also a lesson in potential solutions to these major challenges".

“The majority are concerned about growing market volatility and discussing further ways to boost the diversity of their investments, specifically in the context of global economic slowdown," sh continued.

"And most are now campaigners for best practice in corporate governance, aimed at ensuring sustainable value.

“It’s clear that pensions can be a force for good to contribute to overcoming the substantial challenges in the world, but also a barometer of major questions we all face over the coming decades.”

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