With the needs of traditional defined-benefit-plan clients evolving, pension managers are embracing new attitudes toward risk and adding high-level services.
AN INDUSTRY ON THE MOVE
As globalization spreads, employment, savings and retirement in countries as disparate as Malaysia, Kenya and Saudi Arabia come to resemble patterns that have prevailed for many years in developed markets like the US, France and Japan. Pension and retirement assets grow, financial services expand to manage these assets, and plan sponsors demand more-sophisticated approaches to asset allocation to address the distinctive needs of maturing populations.
This increasingly rapid evolution forms the backdrop for Global Finance magazine’s first annual World’s Best Pension Managers Awards. We reviewed institutional asset management firms whose clients include traditional (defined-benefit model) pension plans. Ownership structures ranged from small to very large firms by assets under management, from independently owned firms to units of large commercial or investment banks and insurance companies and from locally owned to regional and global organizations.
The firms that competed for the awards serve a breathtakingly large, influential and vibrant collection of investors and assets. In a recent study by Willis Towers Watson, defined-benefit (DB) plans represented 52% of a total of $36.4 trillion pension assets across 22 markets surveyed, and 62% of those economies’ collective GDP. And while assets in defined-contribution plans have accumulated more rapidly, the DB universe is still growing—by 2.6% per year, according to the study.
Nor are these investments standing still. In the past 20 years, allocations to alternative investments (“alts”) have expanded from 4% to 24% of all pension assets, the study found—a conclusion bolstered by information from our research for these awards. Firms like Brookfield Asset Management and GE Asset Management (now part of State Street Global Advisors) are moving pension clients into real estate, infrastructure and energy—investments they likely wouldn’t have considered a generation ago. Rising pension investors in Asia are attracted to such alts as well, and firms like BNP Paribas Asset Management are responding to the demand. Meanwhile, asset managers such as BNP Paribas and Prescient Investment Management are moving to set up shop in perhaps the world’s fastest growing pension market—China—following that country’s decision to let outsiders operate fully owned fund management businesses there.
Our research captured the ongoing outsourcing trend as well. Increasing numbers of pension funds have adopted the multimanager model, turning to firms like Mercer Global Investments to assemble and administer a team of specialists. Similarly, outsourced CIO arrangements are becoming more common—recruiter Charles Skorina & Company recently reported that outsourced CIO assets managed with full discretion come to almost $1.4 trillion for the 74 firms on its list, up $240 billion from three years ago—benefiting large, resource-rich firms like J.P. Morgan Asset Management. Other notable trends include an increasing focus on risk reduction and liability-aware management, and growing attention to environmental, social and governance issues.
To capture these developments, we built on primary research, interviews and careful assessment of submissions. We weighed the perspectives of chief investment officers and heads of asset allocation as well as CEOs, chief executives, and managers and directors of pension funds.
Together with them, we assessed candidates across several categories, principally portfolio/performance and professionals/turnover, fee structure, and knowledge of the local market but also including customer service, innovation and risk management. Performance was judged over the most recent four quarters. What emerged were not only the most widely recognized leaders among the world’s pension managers, but a road map of the course they have followed in the past few years and the direction they will take in the years to come.