Pension Asset Growth Outpaced GDP Over Last 10 Years

pension assets

The value of U.S. pension assets has outpaced GDP growth over the last decade, according to data from Towers Watson.

In that time frame, pension assets have grown at a rate twice that of the country’s GDP.

From the Wall Street Journal:

Pension investments in stocks, bonds, cash and alternative assets such as real estate have surged relative to the country’s gross domestic product over the last decade. The value of U.S. pension assets jumped over 89% while GDP rose roughly 42%, according to data from consulting firm Towers Watson & Co.

Those investments were worth an estimated $22.1 trillion last year, 127% of the country’s $17.4 trillion gross domestic product. That’s the highest percentage on record, and up nearly 32 percentage points from a decade earlier.


U.S. pension investments accounted for more than 61% of the $36.1 trillion global total. That total is 84% of global GDP. Global pension assets relative to global GDP are up roughly 15 percentage points from the decade earlier.

The dollar is strong relative to foreign currencies, and U.S. companies have more money available, which widens the disparity, Mr. Ruloff said. U.S. pension plans last year made 67% of their equity investments in U.S. stocks, according to Towers Watson.

Towers Watson reported last month that global pension asset values reached all-time highs in 2014.

Research Shows Pension Funds Are Biggest Owner of Alternatives Among Institutional Investors

Graphs and numbers

New research from Towers Watson reveals that pension funds are the largest buyer of alternative investments among institutional investors (a designation that includes insurance companies, banks, endowments, etc.).

The research also details the rapid rise of alternatives as a major part of pension fund portfolios—globally, alternatives make up 18 percent of pension portfolios. That number has more than tripled since 1999, when pensions allocated 5 percent of assets toward alternatives.


The research — which includes data on a diverse range of institutional investor types — shows that pension fund assets represent a third (33%) of the top 100 alternative managers’ assets, followed by wealth managers (18%), insurance companies (9%), sovereign wealth funds (6%), banks (3%), funds of funds (3%), and endowments and foundations (3%).

“Pension funds continue to search for new investment opportunities, and alternative assets have been an area where they have made, and continue to make, very significant allocations. While remaining an important investor for traditional alternative managers, pension funds are also at the forefront of investing in new alternatives, for example, in real assets and illiquid credit. But they are by no means the only type of institutional investor looking for capacity with the top alternative managers. Demand from insurers, endowments and foundations, and sovereign wealth funds is on the rise and only going to increase in the future as competition for returns remains fierce,” said [Towers Watson head of manager research Brad] Morrow.


“Pension funds globally continue to put their faith in diversity via increasing alternative assets to help deliver more reliable risk-adjusted returns at the total fund level. This is evidenced by the growth, significant in some instances, in all but one of the asset classes in the past five years. Most of the traditional alternative asset classes are no longer really viewed as alternatives, but just different ways of accessing long-term investment themes and risk premiums. As such, allocations to alternatives will almost certainly continue to increase in the long term but are more likely to be implemented directly via specialist managers rather than funds of funds, although funds of funds will also continue to attract assets, as borne out by this research,” said Morrow.

The research was part of the Global Alternatives Survey, an annual report produced by Towers Watson.

Advisors Question Hedge Fund Fee Structure

Monopoly shoe on Income Tax

In light of CalPERS’ recent pullback from hedge funds, scores of investment consultants are coming out of the woodwork advocating for changes to the “2 and 20” fee structure traditionally used by hedge funds.

Towers Watson research chief Damien Loveday told the Wall Street Journal yesterday:

“We believe a better way of tackling fees is by assessing the skill managers offer to clients, rather than paying for market-based returns. ‘Two and 20’ should not be the norm.”

Kerrin Rosenberg, an executive at the consulting firm Cardano, shared the sentiment:

“If ever there was a moment to get rid of ‘two and 20’ forever, this is it.” He backed Towers Watson’s initiative, noting that many hedge funds were out to survive, rather than prosper.

Just because consultants think one way doesn’t mean pension funds will think the same. But it’s important to note that these firms frequently advise pension funds on investment decisions—so it’s safe to say the funds are hearing the same anti-fee sentiment that we are.

Last week, a major Dutch pension fund shut out hedge funds and cited one reason: the fees. From the Wall Street Journal:

Last week, PMT, the Dutch pension fund with €56 billion ($71.7 billion) under management, said it would close its €1 billion hedge fund portfolio, adding that although hedge funds were only about 2% of assets, they collected 32% of the investment fees it paid.

A spokeswoman for the fund said: “The hedge fund investments were expensive if you relate the cost to what the funds delivered. We found that we did earn from hedge funds, but we did not earn enough versus the risks and the costs.”

To be fair, it seems hedge funds have budged just a bit from the “2 and 20” scheme. According to Preqin data, fees have fallen to around 1.5 percent of assets and 18.7 percent of performance.