The total assets of the world’s largest 300 pension funds grew by 11 per cent in 2010 to a record $12.5 trillion amid high levels of risk and volatility that persist in global markets, said a report.

The assets was seen at around $1.2 trillion last year, said a joint research by Pensions & Investments (P&I), a leading US investment newspaper and Towers Watson.

According to the research, the defined benefit (DB) funds account for 70 per cent of assets. DB assets grew by 8 per cent in 2010, compared to 13 per cent for DC funds and 21 per cent for reserve funds.

The study also revealed that despite last year’s growth in total assets, annualised growth of all funds during the past five years had fallen to just over 6 per cent.

By individual region, Europe has the highest five-year growth rate of 11 per cent compared to Asia (9  per cent) and North America (1  per cent), said the study conducted by The P&I / Towers Watson global 300 ranking.

The Latin American and African regions combined have a growth rate for the same period of 15 per cent, albeit from a low base.

The research also showed that the world’s top 300 pension funds now represent over 47 per cent of global pension funds assets, said a senior official.

Carl Hess, global head of Investment at Towers Watson, said: “The world’s largest pension funds have changed their asset mix during the past five years to be more defensive partly due to ongoing volatility and an unpredictable growth environment, with the top 20 funds, on average, now having equal amounts in equities and bonds (c. 40 per cent each) and the rest in alternatives and cash.

At the same time Asia-Pacific funds, in particular Japan, have maintained much higher allocations to bonds in keeping with prevailing investment beliefs there and which explains their now 50 per cent share of top 20 fund assets.”

According to the research, the US remains the country with the largest share of pension fund assets accounting for 34 per cent, although this has declined steadily over the last five years.

Japan has the second-largest market share of 19 per cent (14 per cent in 2007), largely because of the Government Pension Investment Fund.

That fund, which is still at the top of the ranking (a position it has held for the past eight years), has assets of around $1.4 trillion and maintains a conservative asset allocation.

According to the study, 54 new funds have entered the ranking during the past five years mainly from Australia (11), Denmark (5), Mexico (4), Germany (4) and Finland (4).

During the same period, the US and UK combined have had a net loss of 45 funds from the ranking, yet together still account for just under half of all funds.

In 2010, two Russian funds joined the ranking for the first time, including the National Wealth Fund with assets of $88 billion.

According to Hess, top funds across the globe are quickly prioritising governance and risk management arrangements in recognition of the risk of not doing so in increasingly volatile and unpredictable markets.

'Those that have done so will be best placed to adapt their strategies for some of the extreme conditions we could yet encounter, while competing globally for returns in this low growth environment,' he added.

The research shows that assets held by Brazilian funds grew at the fastest rate during the five-year period to the end of 2010, 22 per cent in dollar terms, followed by Australia with 19 per cent.

During the same period the top Taiwanese, Mexican, Danish and Swedish funds grew at 13 per cent, 11 per cent, 9 per cent and 8 per cent respectively.-TradeArabia News Service