LONDON (Reuters) - Global pension fund assets in the 11 major pension markets fell by $5 trillion (3.6 trillion pounds) in 2008 hit by volatile markets, a Watson Wyatt WW.N report said on Monday.
The study said that over 2008, global pension assets fell to $20 trillion from $25 trillion, a fall of 19 percent which took assets below 2005 levels.
Another reason for the decrease was lower government bond yields, which pushed pension liabilities further up.
Pension schemes calculate their liabilities against AA-rated corporate bond yields —if yields fall, liabilities rise and vice versa.
Watson Wyatt said it had selected government bond yields to facilitate liability comparisons across the 11 countries.
All countries in 2008 saw significant negative growth in pension assets, the study noted, except for Germany, which was protected by its high allocation to bonds.
Despite losing market share in the past 10 years the United States, Japan and the United Kingdom remained the largest pension markets in the world, accounting for 61 percent, 13 percent and 9 percent respectively of total pension global fund assets.
Australia emerged as the fastest-growing market and the country with the highest proportion of defined-contribution pension vehicles.
Assets invested in defined-contribution pension schemes, account for 45 percent of global pension assets, up from 30 percent in 1998.
Pension schemes also changed the way they invest their funds in the five years to 2008.
In the seven most-developed pension markets, which include the United Kingdom, the Netherlands and the United States, equity allocations fell to 42 percent from 51 percent in the five years to 2008, having reached a high of 60 percent in 1998.
During the same period bond allocations increased to 40 percent from 36 percent.
Alternative investments allocations like real estate, extent hedge funds, private equity and commodities, grew to 17 percent from 12 percent.
“The pensions system is being tested on every level,” said Roger Urwin, global head of investment content at Watson Wyatt.
“Most notable in 2008 were the impacts on it of credit and collateral risk as well as greater issues around liquidity and volatility. These have been exacerbated by the underperformance of many investment managers relative to their benchmarks,” he also said.
“We have seen some successes from diversification and hedging strategies. But overall we see an industry facing a mountainous challenge,” he added.
Reporting by Cecilia Valente; Editing by Hans Peters