21/09/2012 - Pension fund assets in OECD countries hit a record USD 20.1 trillion in 2011 but return on investment fell below zero, with an average negative return of -1.7%s, according to the OECD’s latest Pension Markets in Focus. The report says that weak equity markets and low interest rates drove the poor performance.
The best performing pension funds came from Denmark (12.1%), the Netherlands (8.2%), Australia (4.1%) and Iceland (2.3%).
Funds in Spain, the United States, Italy and Japan had negative returns ranging from -2.2% to -3.6%. Seven countries, including Finland, Greece, Austria and Poland, saw returns worse than -4% in real terms.
By December 2011, OECD pension fund assets amounted to 72.4% of gross domestic product on average, up from 67.3% in 2001. The Netherlands had the largest ratio, at 138% of GDP, followed by Iceland (128.7%), Australia (92.8%) and the United Kingdom (88.2%).
The United States had the largest market, with assets worth USD 10.6 trillion. But the US’s share has fallen over time, from 67.3% in 2001 to 53.2 in 2011.
Other countries with large shares include the UK, with assets worth USD 2.1 trillion and a 10.7% share; Japan, USD 1.5 trillion and 7.4%; and Australia, USD 1.3 trillion and 6.7 %.
Trends in total OECD pension funds assets, 2001-2011
In USD trillion
The weight of equities in portfolios was at a historical low in 2011, says the report. Australia had the highest, at 49.7%. The only other countries where equities outweigh bonds are the US (26.0% in bonds to 48.1% in equities) and Finland (35.4% in bonds to 41.3% in equities).
Many funds shifted their geographical allocation to reduce exposure to countries deemed to be risky, notably in Chile, Denmark, Netherlands and the Slovak Republic. The crisis also led many funds to reconsider their alternative investments, such as hedge funds and private equity, and strengthen their governance and risk controls.
Looking ahead, funds need to find solutions to shortfalls in fudning through more transparent investment disclosure, better understanding and confidence on the part of pension fiduciaries, and more consistent performance measurement, says the OECD.
The report is available here.