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Big is beautiful for governance - Watson Wyatt

GLOBAL - Assets in the world's 300 largest pension funds exceeded the $10trn (€7.4trn) mark last year, consulting firm Watson Wyatt has found.

A survey conducted by the firm reveals there was a 12% increase in assets in 2006 among these pension funds to reach $10.trn by the year-end, and making the funds ever more influential on the global economy, the consultants noted.

"On top of tackling the ever stretching risk, return and time horizon equation, they have to look increasingly carefully at non-financial factors," Roger Urwin, global head of investment consulting at Watson Wyatt, commented on the "fascinating range of issues" large pension funds set up by nation states have to wrestle with.

"In particular, these funds have to take very seriously questions of sustainability related to environment, social factors and corporate governance. These subjects are of critical macro-economic and societal significance."

Urwin also told IPE he sees a positive correlation between pension fund size, performance and governance.

"Big funds can gain two benefits: size is particularly helpful to governance and the link between governance and performance is strong and there are also expense economies of scale."

That said, although he thinks "amalgamation of funds has a lot of advantages in principle to produce critical mass in pension funds". it is difficult with defined benefit schemes.

It has therefore mainly been used in Australia so far, where defined contribution schemes prevail.

According to the survey, the top 20 funds worldwide amount to $3.8trn and have grown faster than the remaining 280 funds. Their assets increased 12% compared to 9% for the rest.

The top 20 pension funds according by size, as of March 31 2007, are:

1.  Government Pension Investment Japan      $935.6bn
2.  Government Pension Norway                       $285.6bn
3.  ABP Netherlands                                            $273.9bn
4.  California Public Employees US                    $218.2bn
5.  National Pension Korea                                 $203.2bn
6.  Federal Retirement Thrift US                         $188.1bn
7.  Government Employees South Africa           $177.6bn
8.  California State Teachers US                        $149.0bn
9.  New York State Common US                        $144.3bn
10. Local Government Officials Japan               $136.8bn
11. Postal Savings Fund Taiwan                        $128.2bn
12. Florida State Board US                                 $124.4bn
13. Ontario Teachers Canada                            $121.0bn
14. General Motors US                                       $119.0bn
15. New York City Retirement US                      $114.6bn
16. Pension Fund Association Japan                 $106.8bn
17. PGGM Netherlands                                      $106.5bn
18.  Canada Pension Canada                             $100.7bn
19. Texas Teachers US                                      $100.7bn
20. New York State Teachers US                       $94.3bn

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