T wenty-three trillion dollars is an awful lot of money. According to a report from consultancy Towers Watson, global pension assets under management are now at this level, after gaining 15 per cent in size in 2009.
While this growth is an impressive rebound from the losses of 21 per cent suffered by the funds in 2008, the bigger question is what will these schemes do with all of this money?
Undoubtedly, some are in far worse health than others, and hardly in a position to think about anything besides capital preservation. But for the large ones with solid solvency ratios, where next?
There is good reason to believe that 2010, on top of returns that effectively brought schemes back to their pre-crisis levels of assets and solvency, could be the year when several schemes form their own asset management companies and the industry consolidates into fewer, but far larger, pension funds.
In Europe, it has been happening for years. Multi-billion-dollar funds like ABP, PGGM and PFA have gone into the asset management business, and so far they hardly seem to regret it. And if they can do it, what is there to stop another gigantic fund like CalPERS or Korea’s National Pension?
They have a decent sales pitch, too. Who better to manage a pension fund’s assets than an experienced and highly successful scheme that has grown remarkably?
For asset managers it is a problem, because an already saturated industry will now have even more competition.
While they are hardly about to go bust, this is a new threat and the asset management industry will have to face it at some point.
spencer.anderson@ft.com
