The assets of the world’s largest pension funds grew by 11.5% in 2020, to 18.3 trillion

The largest pension fund in the world is that of Japan, with 1.4 trillion euros, followed by Norway and South Korea.

The Japanese flag carried by the Tokyo 2020 volunteers.

The value of the assets of the 300 largest pension funds in the world experienced a increase of 11.5% during 2020 despite the pandemic, standing thus at the end of the year in 21.7 billion dollars (18.3 billion euros)according to a report prepared by the consultancy Willis Towers Watson.

By geographical area, North America is the largest region in terms of volume of pension fund assets under management, with 41.7% of the total. Behind are Europe and Asia-Pacific, both with 27.5%.

Of the 300 pension funds covered by the Willis Towers Watson report, almost half are sovereign or public sector (141). In addition, these funds accumulate in their hands 68% of the assets covered by the study. In second place are corporate funds: 101 funds that accumulate 17% of total assets. Independent private funds (58 out of 300) manage 15% of the volume of assets.

The top 20 pension funds invest predominantly in equities (46.6% of total assets), while fixed income accounts for 36.3% and alternative investments stand at 17.1%.

At the end of 2020, the largest pension fund in the world was that of Japan (Government Pension Investment)with 1.7 billion dollars (1.4 billion euros) in assets, while Norway’s (Government Pension Fund) reached 1.3 billion dollars (1.1 billion euros) and that of South Korea (National Pension) stood at 765,446 million dollars (more than 644,500 million euros).

Diaphanum is loaded with liquidity due to the bubble in the rest of financial assets

The recovery is being uneven, Europe will not recover pre-pandemic GDP levels until the 2022-2023 period.

Diaphanum Image

The investment firm Diaphanum opts for prudence in the face of the final stretch of the year, underweight government bonds and equities, and maintains a neutral position in corporate bonds and alternative assets, while overweight treasury, according to a statement.

The entity considers that the financial assets have demanding valuations, supported by factors such as the normalization of the economic effect of the pandemic, the recovery of growth, the monetary and fiscal stimuli and the evolution of the results, although it views with concern the growth of inflation, the weakening of some leading indicators and the possibility of a reduction in monetary stimuli, as well as high asset valuations.

With regard to monetary policy, in a scenario where the balance sheet of the four main central banks increased by 58%, between March 2020 and July 2021, and the level of bond purchases has occasionally exceeded the level of issuances of the Treasury, Diaphanum believes that “the tapering will be very gradual, that it will be led by the US and it does not foresee rate hikes until 2023”.

For his part, Miguel Ángel García, Director of Investments at Diaphanum, explains that “the ECB maintains the deposit facility rate at -0.5% and the other very low types of intervention and will maintain it until the economic reactivation is confirmed, unless the inflationary process continues. In this scenario, the treasury can become a refuge from the possibility of suffering losses in other assets with the advantage that it allows lower portfolio volatility and take advantage of opportunities”.

While Carlos del Campo, a member of the Diaphanum investment team, comments regarding government bonds that “in March 2022 the purchase program will end and it is very likely that another plan will be approved, although foreseeably with a lower amount”. And he adds: “even if it reduces purchases, the ECB will not allow sharp increases in yields, since it would excessively increase the deficits of the States”.

equities

Diaphanum maintains an underweight position in equities since, even if the forecast earnings growth, valuations are very tight. Poor bond yields and central bank support for markets have boosted equities.

The entity considers that, facing the final stretch of the year, as the Covid-19 crisis subsides and companies stop being so concerned about preserving their cash, dividend yields are expected to improve. By geographical areas, Diaphanum prefers the bag of USA and emerging (especially China and India), against Europe and Japan, overweighting sectors with predictable results such as technology, health and non-cyclical consumption.

The entity is committed to illiquid assets that offer a very attractive return, with a decorrelation compared to the evolution of the financial markets. Specifically, he recommends a proportion between 5% and 15% of the assets invested in this type of asset and sees opportunities in venture capital, private equityrenewable, real estate and infrastructures.

uneven recovery

Source: Diaphanum

Source: Diaphanum

In addition, the manager believes that “the world economy is recovering strongly from the historic recession of 2020, with a rate of exit from the economic contraction that is being one of the fastest in history. She also highlights that the return to the expansionary cycle intensified in the second quarter of 2021, coinciding with the rebound in immunization, the economic reopening and historically high stimuli”.

However, the entity warns that the recovery is being uneven, the US and China have already recovered the pre-pandemic level of GDP, something that will not happen in the European Economic and Monetary Union (EMU) until the period 2022-2023. On the other hand, emerging Asia will continue to be the most dynamic geographic area in the world (China and India will account for more than a third of world growth in 2021-22).

More investment

Expectations of a strong recovery and the discipline of producers have brought the price of oil to levels of 70 dollars/barrel, despite OPEC’s production increases. From Diaphanum they estimate that crude oil will be in the range of 50/60 dollars/barrel and that, in the long term, the supply will be affected by the lack of investment that can be compensated by the promotion of green energies.

The entity is betting on “a moderate rise in gold, with negative real interest rates, inflation, increased demand and low supply growth as the main catalysts. The growth of China, the largest consumer of industrial raw materials, will continue to put pressure on prices”.

With regard to currencies, the entity bets on the appreciation of the dollar. Javier Riano, data scientist in the Diaphanum investment team, explains that “with growth and interest rate differentials, the dollar should appreciate, but it is responding to the withdrawal of monetary stimulus earlier than expected.”

For its part, the entity believes that the evolution of the Pound will depend on the result of Brexit and the exit of the pandemic in its economy, especially how it affects it in the service sector and especially in the financial sector, and does not expect significant movements in the rate of the yen or the Swiss franc.

Saving is owning our future

The AEB spokesman values ​​financial education at a time when central banks have generated financial repression that affects savers.

Saving is owning our future

Saving means stopping spending today to be able to do it in the future, either because we have a specific consumption goal or the purpose of preparing ourselves for needs that may arise later and thus face uncertainty more comfortably. But it’s not just that.

Saving is a deliberate and planned act. The impossibility of spending, as happened to us during confinement, should not be considered savings in the strict sense, since everything indicates that the future return to economic and health normality could lead to the materialization of an important part of that consumption that was not carried out, that was dammed up and is now starting to break free. Saving is not just accumulating reserves either, is to make them profitable tooso the return offered by the different types of assets at any given time is a determining factor.

In Spain, more than 40% of the financial assets of families are in cash and deposits. This is a very high percentage, but in line with what is happening in Europe given the existing imbalance between the profitability of safe assets and that of those that carry risk, and which is not surprising, especially if we take into account that the alternative in terms of security and trust to deposits is public debt, largely with negative returns.

The rest of the distribution of financial assets of Spanish households are shares in the capital of companies (25% of the total), insurance and pension funds (16%) and shares in investment funds (15%). This last segment is the one that increased its weight the most in the last year, in line with the revaluation of the financial markets due to the greater economic certainty after the pandemic.

In Spain, more than 40% of the financial assets of families are in cash and deposits

In Spain, housing is the main patrimonial decision of families, a behavior that goes beyond a pure financial decision. In this country of owners, the population’s commitment to housing as the main savings and investment formula is more than evident, a trend with little sign of changing, despite the warnings from the IMF, which a few weeks ago underlined the upward spiral of house prices worldwide, as a result of low official interest rates and inflation in some financial asset markets.

Against this background, financial assets are the ones that best respond to the three principles on which saving is based: availability, consistency and profitability.

Following the first principle, availability when materializing our savings, will offer us the room for action in times of need. If we save to have money to meet a future need, it is essential that we can dispose of it easily and quickly.

Paying attention to the second principle, consistency, is essential to comply with savings planning and protect ourselves against impulses encouraged by the information age in which we live. Although digitization provides us with information for analysis in real time, it also requires a calm approach to our desires and needs: impulses should not dominate our financial decisions.

The third principle, profitability, is not an objective in itself when it comes to saving, but it does condition what the savings are used for. At this point, the financial repression generated by the low interest rates set by central banks accentuates the inflation of financial assets and the risks when investing.

How should we save? And how can we ensure our savings? There is no specific and universal answer to these questions, but there are some guidelines that can help us along the way.

The financial educationespecially if acquired at an early age, and good professional advice adjusted to our saver profile can help us make the best decision at all times, although they are not a guarantee of success in all cases.

We all make decisions freely and are responsible for their consequences, so calmly analyzing all the necessary information available contributes to the proper management of our personal finances, to better managing our money, something necessary at all stages of life.

On the contrary, we must not let ourselves be carried away by unfounded recommendations or by impulses or currents of opinion. Neither should we be sinful of risk aversion or of an excess of confidence that leads us to make hasty and poorly thought-out decisions. Even if we were right, we would not know how to argue it and we could create a bad habit that would cause us problems in the future.

The individual savings goals they are as personal as their vital priorities and their scale of values. Education and training, ours and our children’s for example. In addition, in a world dominated by innovation, it should be a priority to invest in financial education to provide future generations with the best tools to react to a world that is constantly changing. For the good of their individual decisions and of society as a whole.

*** José Luis Martínez Campuzano is spokesman for the Spanish Banking Association.