Straitened times, new measures
This year's IPE Top 400 Asset Managers survey charts a flatlining global asset management industry with total AUM of €36.3trn at end-2011, a whisker up from the previous year's total of €36.2trn. And despite striking a rare note of optimism in this month's magazine as we report projections for the Turkish pension market to grow to €100bn in 10 years, the outlook is also gloomy for Europe's pension markets. European institutional assets were down 3.5% in 2011, according to our survey.
The 1990s and 2000s saw a great expansion of pension assets as countries expanded supplementary pension saving or, like in Ireland and France, invested the proceeds of 3G mobile phone licences in pension buffer funds. However, those funds have either been drawn down to plug enormous budget deficits or will be in the future.
Other countries have nationalised their pension assets, Portugal, for example, transferred €2.8bn in assets of Portugal Telecom to the state in 2010 and another €6bn in banks' pension assets the following year.
The UK has recycled €5.4bn from Royal Mail's pension fund into the state budget thanks to opaque accounting of government pension obligations which mask the problem. The UK once prided itself on having what it termed the best pension system in the world, so this hardly sets a good precedent for others.
As traditional defined benefit (DB) makes the transition to legacy mode in the UK and the Netherlands - and increasingly in the US - the stock of DB assets will gradually draw down over coming decades. As in the Netherlands, benefit cuts are likely to take place in the UK as politicians deal with decades of policy neglect.
Will defined contribution (DC) come to the rescue? Thanks to the UK's Office for National Statistics, we know that the country's DC pension assets totalled a healthy £386bn (€480bn) at end 2010, compared with total DB assets of £1.03trn. At some point, DC assets will outgrow DB assets, but projections are difficult because of the uncertainties around auto-enrolment.
This ambitious project to turn millions of middle and lower earners into pensions savers is laudable. But the government has fought shy of outright compulsion for political reasons, and with an uncertain economic outlook, many may conclude that their other financial commitments preclude pension saving. Dutch DC assets are also smaller than the corresponding DB assets, although growth is expected to continue.
At least European financial services providers have recognised the potential of Turkey's fast-growing pension market, as the presence of the likes of Allianz, ING and BNP Paribas attests. Pension asset growth in other countries is likely to be sluggish, with interest in LDI, risk management and insurance solutions in the DB sector and with traction for diversified, low-volatility investment options in the DC sector.