The world’s top 300 pension funds saw the value of their collective assets under management increase by 11.5 per cent to $21.7trn (£15.7trn) in 2020, according to Willis Towers Watson's Thinking Ahead Institute.

The research showed that the top 20 pension funds’ assets under management (AUM) constituted 41.8 per cent of the total and grew by 14.6 per cent in 2020, the second highest annual growth rate since 2004.

The Thinking Ahead Institute said this translated to a compound annual growth rate during the last five years of 8.9 per cent for the top 20 and 7.9 per cent for the top 300.

The research showed that the UK had the highest net loss of funds from the top 300, with four dropping out of the group in the period, which the research attributed to increasing maturity of the nation’s defined benefit (DB) schemes.

Additionally, no UK pension fund managed to break into the top 20, with Japan’s Government Pension Investment still leading the way with total assets of $1.719trn, followed at the top of the pile by Norway’s Government Pension Fund and South Korea’s National Pension.

The top 20 group had just one new entrant, with Russia’s National Wealth Fund taking 17th place at the expense of the Texas Teachers pension fund, which dropped to 21st in the rankings.

DB schemes were dominant worldwide, holding 63.4 per cent of the assets under management, but the research noted that DB fund assets had “been declining modestly over the years” amid growth in traction from defined contribution funds, reserve funds and hybrid fund assets.

Meanwhile, sovereign and public sector pension funds were marked as accounting for 68 per cent of the total assets under management, with 141 funds of this type in the top 300, while corporate pension funds made up 17 per cent with 101 funds and private independent funds accounted for 15 per cent with 58 funds.

In terms of allocations of the top 20 funds’ assets, 46.6 per cent were equities, while the next most prevalent asset type was fixed income (36.3 per cent) and alternatives and cash (17.1 per cent) – on a weighted average basis.

Thinking Ahead Institute co-head, Marisa Hall, commented: “Overall, the world’s largest pension funds grew strongly in 2020, yet the pandemic has also been a stark reminder of how the world is more interconnected and uncertain today than ever before.

“Pension fund boards are increasingly focused on managing many of the headwinds that have arisen from a 'new normal' of lower-for-longer interest rates. This has prompted concerns around solvency and led some schemes to increasingly stretch their risk budgets in order to meet return targets.

“Additionally, managing rising ESG expectations have created their own set of challenges and opportunities.”

She added that pension fund boards’ agendas had become “more complex and demanding than at any previous time”, noting that schemes were reacting to this challenge in different ways.

She concluded: “The shift in focus to meet the investment challenges of tomorrow – such as achieving net-zero targets and ensuring real-world impacts - is prompting an increasing number of pension fund boards to adopt a more holistic and agile approach as they revamp their people, investment and business models.

“Boards which are successfully managing this transition have employed the power of technology, governance and culture ingeniously. Other pension fund boards are taking notice.”

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