Institutional pension fund assets rose for the third straight year in 2011, although balance sheets weakened with the ratio of global assets to liabilities well down on a 1999 peak, finds consultancy Towers Watson.

By contrast, both Australia and Hong Kong’s dominance of defined contribution assets means that their balance sheets have not been impacted to the same extent as other countries.

The firm’s Global Pension Assets study released this week showed that pension assets in 13 major markets climbed 4% year-on-year to a new high of $28 trillion. This amounts to 72% of global GDP, which while lower than in 2010 (76%) is far higher than the 61% recorded in 2008.

Global pension fund assets have now grown at over 6% on average per annum since 2001, when they were valued at $15 trillion.

“The last six months of 2011 have driven home the need to have investment strategies that are flexible and adaptable and which contain a broader view of risk,” says Naomi Denning, Asia-Pacific managing director of investment services at Towers Watson.

“This approach makes greater allowance for extreme events, which are occurring more frequently, while accommodating the softer elements of risk, such as credit and liquidity.

“However, there is still some way to go before the appropriate measurement and management of risk is firmly embedded in the governance structures of most pension funds.”

The US, Japan and UK remain the largest pension markets in the world, accounting for 59%, 12% and 9% of global pension fund assets, respectively.

In terms of 10-year CAGR figures (in local currency terms), Brazil has the highest growth at 14%, followed by South Africa (13%), Hong Kong (10%) and Australia (9%). The lowest are Japan (-1%), France (1%), Switzerland (4%) and Ireland (4%).

Over the past 10 years the UK has grown its pension assets the most as a proportion of GDP (by 30 percentage points to 101%), followed by Australia (24ppt to 96%), the Netherlands (23ppt to 133%), Hong Kong (15ppt to 34%) and the US (12ppt to 107%).

Bond allocations for the biggest seven pension fund markets have decreased by 3 percentage points over the past 16 years to 37%, while allocations to equities have sunk by eight points to 41%, although the majority of this actually occurred in 2011.

But, contrastingly, exposure to alternative assets, especially real estate, has risen from 5% to 20% since 1995, with the US leading the way (5% to 25%), followed by Switzerland (9% to 28%), Netherlands (1% to 14%), Australia (14% to 24%) and Canada (10% to 20%).

Further, the CAGR of defined contribution (DC) assets over the last decade was 8% against 5% for defined benefit (DB) assets.

DC assets now comprise 43% of global pension assets, compared with 38% in 2001. Australia has the highest proportion of DC to DB pension assets at 81% to 19%. The other markets with a larger proportion of DC assets than DB assets are the US and Switzerland. But Japan and Canada remain close to 100% defined benefit.

Separately, 65% of pension assets in the biggest seven countries are held by the private sector, with 35% for the public sector.

The extreme end of this is the UK and Australia, where the private sector holds 88% and 85% of pension assets, respectively. At the other end are Canada and Japan, the only two countries where the public sector holds more assets at 61% and 71%, respectively.

The seven largest pension markets in the study, which account for 95% of assets, are Australia, Canada, Japan, Netherlands, Switzerland, the UK and US. The 13 include Brazil, France, Germany, Hong Kong, Ireland and South Africa.