Europe's pension assets top $3.8trn
As ever, William M Mercer’s annual survey of European pension fund managers throws up some interesting figures. Private sector pension assets in the 15 countries covered by the report now represent 40% of total GDP in 2000, compared with a corresponding figure of 32% back in 1996.
The largest growth has been in the Netherlands, Sweden and Denmark while in the UK pension assets have grown from 72% to 91% of GDP over the same period to top $1.4trn (e1.6trn) at the end of last June. Second in line is the Netherlands with $695bn in pensions assets or 162% of GDP and total European pensions assets are put at $3.8trn.
“The figures underline the importance of pension fund assets to the European economy. The key point is the polarisation between funded and unfunded Europe. The UK represents nearly 40% of Europe’s total pension fund assets while the four largest economies of continental Europe are just starting to address the funding issue,” says Julia Hobart, worldwide partner at William M Mercer and editor of the report.
According to the report, it is Barclays Global Investors that comes out on top with European pension assets (excluding pooled assets) of $115bn at the end of last June, up from $107bn the year before. Merrill Lynch Investment Managers, with assets of $96.6bn has moved up one place to second and overtaken Schroders, despite its total being down almost $4bn. There are six new entrants to the table: Legal & General, Zurich Scudder, First Quadrant, Henderson, Fidelity International and Capital International.
Unsurprisingly, there has been a major shift from domestic to Eurozone investment with domestic assets now representing less that half of European exposure. The number of domestic bond mandates has dropped by 92% in the last two years while Euro-zone and European bonds have enjoyed a boom. In France and Germany the transition has been particularly marked with Euro-zone bonds now representing, respectively, 25% and 39% of total pension fund assets.
Over the same period the number of domestic equity mandates has fallen 60% much to the benefit of Euro-zone and European equity mandates. A switch to Euro-zone equities has been particularly pronounced in Ireland, Spain and Portugal. Two years ago in Ireland 34% of pension assets were invested in domestic equities, today it is 19%. Overall, Euro-zone equities represent 15% of total assets.
According to Hobart the move from domestic assets has thrown up considerable challenges. “Although it was predictable, the reality is that many individuals have had to change from being home market specialists to pan-European experts in a very short space of time. This, against a background of extreme market volatility, has been no mean feat.”
The switch from domestic to Euro-denominated bonds, prompted by the euro, has produced some interesting knock-on effects according to the report. “One has been the rapid emergence of the corporate bond market as well as specialist areas such as high yield bonds. Another development is the shift from domestic equities that has taken off in the last year. If anything, the embracing of Euro-zone equities has happened rather faster than expected,” says Hobart. Most managers have also used the euro to reorganise their research along industry opposed to geographical lines. In addition there has been a 31% increase in specialist mandates in the UK over the past two years while the corresponding figure for continental Europe is a more modest 3%.
Results from the report suggest UK managers continue to dominate the European pension fund market. Of the top 20 managers, 12 list the UK as one of their home countries, while only half did a year ago. More dramatic though is the ascendancy of US managers. In 1999 only four registered the US as one of their home countries, this year it was 10. The research also suggests that most managers are expanding their European networks. The average number of countries that managers now have offices in is 3.3 opposed to 2.8 a year ago.