Continued merger activity and a preference for growth investments have helped boost the rankings of nearly all the Australian funds featured in an annual study of the world’s biggest pension funds.

There were 17 local superannuation funds included on Willis Towers Watson’s latest list of the globe’s 300 biggest pension funds, for the year ended December 31, 2017. This is up from 16 the year before, with VicSuper making its debut in the list in the 289th position.

Michael Dundon, VicSuper chief executive said “strong organic growth has continued through positive net inflows”.

“Our members are really responding to the value we’re delivering through the services we provide, helping lead to more income in retirement – and that’s the main game,” he told Investment Magazine on Monday.

Willis Towers Watson’s latest Pensions and Investments – Thinking Ahead Institute world 300 revealed that the 17 Australian funds in the survey collectively boosted their assets under management (AUM) from US$556.2 billion in 2016 to US$723 billion in 2017.

This year, 15 of those funds improved their ranking over 2017. State Super was the only ranked Australian fund to decline in the list, dipping from 133rd place in 2016 to 142nd place in 2017.

Australia’s largest entry, the sovereign wealth Future Fund, moved to 26 on the list, up from 32 in 2016, with assets under management of US$108 billion ($150 billion).

Willis Towers Watson senior investment consultant Paul Newfield said there were three drivers for the ascendance of Australian funds on the list: the compulsory super system, relatively high allocations to growth assets, and an uptick in merger activity.

“Those funds with the highest allocation to equities and real assets, or that merged in recent years, have tended to jump ahead further on the list,” Newfield said.

There are 248 Australian Prudential Regulation Authority-regulated funds, a number the corporate regulator has made no secret of wanting to see reduced. In August last year, it wrote to the boards of the worst performers, saying they should make changes or they risked being shut down.

Sunsuper, which jumped from 140 to 116 on the list, completed its merger with Kinetic Super in May. The, in July, the Queensland-based fund unveiled merger plans with AustSafe Super.

AUM for the entire list increased by 15.1 per cent to reach a total of US$18.1 trillion, up from 6.1 per cent in 2016. The top 20 funds accounted for 41.1 per cent of AUM in the ranking, a slight increase from 40.3 per cent last year.

There are now two funds with assets of more than US$1 trillion. The Norwegian Government Pension Fund has joined Japan’s Government Pension Investment Fund in surpassing this mark.

Australia now has 6 per cent of the funds in the Top 300.

“In terms of both relative positioning and net participants, Australia has continued to fare incredibly well,” Newfield said. “Over the past five years, we have had two net new entrants, second only to the United States. Many other developed countries, including Canada, the UK, Germany and others have actually had reductions in the number of funds they have on the list.”

The US had the largest net number of new funds (9) and with 133 funds in the list, has the largest number of funds in the top 300. The UK has 25, Canada 18, and Japan and Australia both have 17.

But Newfield said despite this year’s standout result, he remained concerned about “likely future returns” over the next five years, believing they were skewed “to the downside”.

“We advocate for more diverse portfolios to increase the likelihood that funds can perform well if significant risk events occur, while still providing solid returns if the markets continue to perform well,” he said. “We need to look at governance. The [Hayne] royal commission has illustrated a number of shortcomings within the Australian system and how funds have operated.

“While we have a big superannuation system and one that has generated good returns on average, our system has not lived up to member expectations in terms of building trust and delivering retirement outcomes.”

A 2017 Willis Towers Watson asset owner study found that improved governance could deliver an additional return of about 1 per cent a year.

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