GLOBAL - Equities out-performance and widespread diversification into alternatives doubled pension fund assets over a 10-year period to $23.2trn (€17.8trn) at the end of 2006, according to investment consultants Watson Wyatt.
Much of the growth has occurred in the past few years. With a compound annual growth rate of 7.5% over the past decade, in 2006 global pension assets grew by 13% in dollar terms.
Equity allocations increased to just over 60% from 51.6% over the period 1996—2006, while those for bonds fell from 36.5% to 25.5%.
Watson's global head of investment consulting Roger Urwin forecast that diversification into real estate, hedge funds, private equity and commodities - all of which have shown recent growth - will continue in 2007.
"It is difficult to be precise because each market place has different drivers that influence asset allocation, which will in turn affect the overall global allocation," he said. "Broadly speaking, in the long term the result of increasing diversity will be a reduction in reliance on equities."
In liability terms, pension funds are in their best position since 1999, according to the report. Global defined benefits assets grew just over 11% in 2006, compared with growth in liabilities of 5.9%. This was in contrast to the overall trend over the past decade, which saw liabilities growth outpace that of assets.
However, Urwin said it was "still too early to characterise the global balance sheet as ‘strong'" because longevity and lower long-term bond yields had increased liabilities.
A report published earlier this month by International Financial Services, based on OECD data, put the current figure for pension fund assets under management at $18.6tr. Watson Wyatt's report is based on its Thinking Ahead research group and "a variety of other sources".