Global pension fund assets plummet

How fast are Australian superannuation fund assets growing? By an average of 14 per cent a year over the past 10 years.

That is the bottom line of the latest Watson Wyatt Global Pensions Asset Study released this week, with the superannuation fund assets recorded over that period equating to 105 per cent of Australia’s annual gross domestic product, compared to just 46 per cent 10 years ago.

However, Watson Wyatt has warned of tougher times ahead, suggesting that as a result of market volatility, global pension fund assets could have diminished by between US$1 and US$1.5 trillion since the beginning of the year.

So how is Australia tracking when compared to other pensions markets? Well, global pension assets increased by 9 per cent during 2007, compared to an average growth rate of 12 per cent a year during the past five years.

Commenting on the findings of the research, Watson Wyatt head of investment consulting practice Graeme Miller said that while assets growth in previous years had been encouraging, recent events should serve to remind investors of the value of risk management and the benefits of diversification.

Looking at asset allocation, he said that there had been a shift out of equities and into bonds and alternatives and this trend is expected to continue.

“However, funds still carry around 20 per cent overweighting to equities relative to global capital market opportunities,” he said.

Miller described 2007 as having been a year of two distinct halves.

“In the first half, defined benefit superannuation fund balance sheets continued to strengthen, but faltering markets in the latter half largely undid these gains,” he said. “Severe market events this year suggest that balance sheets will remain under pressure.”