Global (excluding US) pension fund performance

Global (excluding US) pension fund performance describes the performance of pension fund managers, sampled worldwide. Pension funds are the funding mechanism for defined benefit plans, and in some countries are used as funding mechanisms for contributory retirement savings programs.

Global ex-US pensions
In 1994, the World Bank issued an influential study, "Averting the old age crisis: policies to protect the old and promote growth". Citing rising demographic pressures, the report recommended that nations consider structuring a "three-pillar" approach in addressing the support of aging populations:

"The study concludes that financial security for the old would be better served if governments developed three systems, or "pillars" of old age security:


 * 1) A publicly managed system with mandatory participation and the limited goal of reducing poverty among the old;
 * 2) A privately managed, mandatory savings system;
 * 3) Voluntary savings." 

As a result, many of the nations discussed below have added "second pillar" programs to there retirement systems.

Canada
In 2006, approximately 30% of the Canadian populace (mostly government and bank employees) where covered by defined benefit pension plans. The relative performance differential between pension plan stock and bond portfolio returns and mutual fund returns is considerable.

Ambachsheer and Bauer study the relative returns of Canadian equity mutual funds and defined benefit plans equity portfolios over the 1996 - 2004 period. The study involved 2781 mutual funds and 636 defined benefit pension plans. Over this period, mutual funds produced a before fee +0.15% return over the benchmark return. However, investment costs (MER, not including any sales charges) averaged 2.75%, thus resulting in a -2.60% net shortfall to benchmark returns.

Over the same 1996 - 2004 period, defined pension funds produced a +1.47% return over benchmark returns, reduced by a 0.25% MER, for a net +1.23% premium return over the benchmark. In the equity sphere, mutual funds lagged pension funds by -3.83%.

Bauer and Kicken (2008) examine bond fund returns over the 1997 -2004 period. Defined benefit plans bond portfolios produced a modest net return of 6.5 basis points over the benchmark return, aided in large part by a 12.4 basis point expense ratio. Over the same period, bond mutual funds lagged benchmark returns by -173.6 basis points. Mutual fund expenses averaged 169.2 basis points.

Finland
Finland's retirement system is split between a 75% pay-as-you-go publicly funded pension and a 25% pre-funded pension. In 2011 the prefunded pension funds hold approximately €150 billion in net assets. This pool of capital is managed by 37 not for profit organizations; the four largest organizations manage €103 billion.

In a report requested by the government of Finland, Ambachtsheer (2013) provides asset allocation, cost, and performance data for a combination portfolio made up of the seven largest Finnish pension fund managers.

The report found that the average asset allocation of the composite pension fund consisted of 40% equities, 45% debt, 10% real estate, and 5% alternative investments. The plans overweighted Finnish stocks, in comparison to global stock market weights, by holding 17% of the fund in Finnish stocks (see Figure).

The annual average cost of the composite pension fund is 49.2 basis points. This compares to a 47.4 average basis point expense for global larger funds, and an average 41.3 basis point expense for global smaller funds. Finland's pension funds internally manage 65% of plan assets compared to the 12% internally managed average of global pension fund. The cost advantage of internal management is offset by the Finnish plan's higher costs for alternative outsourced assets, mostly Finnish private equity, and hedge funds.

In terms of investment performance, over the 2007 - 2011 period, the composite Finland pension fund provided a net 2.5% compound return. This return compares to the 2.1% return of the fund's benchmark. For comparison, over the same five year period global larger funds earned a net compound 3.5% return (versus a 3.6% benchmark return). The Finland composite fund's 1% lower return was due to the home bias reflected in the 17% allocation to Finnish stocks, which underperformed the global stock market over this five year period.

Greece


In Greece, pension benefits are provided by a large number of social insurance funds classified as primary, auxiliary and provident funds. According to the Social Budget issued by the Ministry of Labor and Social Security in 2006, there are 175 funds of which 25 are primary funds and the remaining auxiliary and provident funds.

In Greece, public pension funds can invest up to 23% into risky assets and are not allowed to invest outside Greece.

In 2006, the average Greek pension fund held:
 * Cash deposits: 59%
 * Greek bonds and bond mutual funds: 17%
 * Greek equities and mutual funds: 24%
 * Mutual funds: 5%

Angelidis and Tessaromatis (2009) conclude: "Restricting the weight of equities to 23% of the total portfolio, leads to sub-optimal asset allocation that costs as much as 2% (3%) per annum compared to a balanced domestic (global) benchmark."

Netherlands
In the Netherlands, defined benefit pensions are a feature of a "three-pillar" retirement funding system that includes, as one pillar, a state pension that provides a basic income, the level of which is linked to the statutory minimum wage. A third pillar includes individual pension products mainly used by the self-employed and employees in sectors without a collective pension scheme.

The second pillar consists of the collective pension schemes administered by a pension fund or by an insurance company. Participation in collective pension schemes is mandatory, and 90% of the Dutch workforce are covered by these plans. At the end of 2008 there were about 600 pension funds in the Netherlands managing about € 700 billion in invested capital (a sum larger than annual Dutch Gross National Product). The largest fund in the Netherlands has more than 1 million active members and an invested capital in excess of € 150 billion. But there are also funds with less than 100 members and an invested capital of just a few million Euros.

In the Netherlands there are three different types of pension funds:
 * Industry-wide pension funds (for a whole sector, such as the civil service, construction industry, hotel and catering industry or the retail sector)
 * Corporate pension funds (for a single company or a corporation)
 * Pension funds for independent professionals such as medical specialists and dentists.

Huang and Mahieu (2010) explores the performance of Dutch pension plans over the period 1998 - 2006, using a sample of Dutch industry-wide pension funds. Dutch mandatory industry-wide pension funds are obliged by law to publish a performance measure known as a "z-score" to show their net-of-fees investment performance relative to a priori self-selected benchmarks. These scores reflect the implementation quality of the strategic asset allocation.

Huang and Mahieu conclude: "We find that pension funds as a group cannot beat their self-selected benchmarks and show no performance persistence. However, we do find that large funds perform consistently better than small funds. This might be attributed to factors like economy of scale in costs, expertise in asset manager selection, or effective monitoring of asset managers."

The advantages of large size are reflected in Lum (2006) which examines Dutch pension returns from 1996 to 2005. Using the CEM database of 13 Dutch funds with total assets of €369 billion (2005), the study finds that the Dutch pension funds had average annual investment costs of 0.21%; produced a positive 0.60% value added; and registered a positive 0.50% information ratio.

Norway
The Government Pension Fund Global was established in 1990, when it was known as the Petroleum Fund. The fund's primary goal is to manage Norway’s resource wealth in a long-term and sustainable manner by diversifying into a broad portfolio of international securities. A second goal is to use the Fund as a device to insulate the domestic economy from the resource curse of inflated domestic prices and exchange rates, de-industialization, and a disincentivized populace.



Over time, the fund has expanded its allocation of assets and experienced an evolving benchmark. Below is a timeline for the evolution of benchmarked assets.

The fund allocates 7% of the portfolio to 44 external managers. Expenses are very low, ranging from 8 to 14 basis points over the life of the fund.

Fund returns have modestly exceeded benchmark returns, as the table below indicates. Ang, Goetsmann, and Schaefer (2011) finds that the excess return from active management is due to capturing factor returns, and recommends that the fund consider using these factors in benchmarking the portfolio and, where practical and cost efficient, and taking into account the constraints imposed the fund's size, in portfolio asset allocation.

Switzerland
Ammann and Zingg (2008) examine the performance of 73 Swiss pension funds and 13 investment foundations, holding CHF 200 billion, and representing 20% - 25% of Swiss pension assets. The study examines returns over the 1996 - 2006 period. While pension asset allocations are constrained by Swiss law, pension funds can receive exemptions by subscribing to a prudent investor rule. Approximately 80% of Swiss pensions are exempted from the rule.

Swiss investment foundation costs are tabulated below:

Net returns for pension funds are tabulated in the tables below.

Factor regressions supply the following returns data. Domestic and international bonds returns are analyzed using a four-factor performance measurement model that includes a bond and a stock market index as well as two factors representing term and default risk. An additional exchange rate factor is added for international bonds. Stock returns are analyzed using the Fama-French three factor model. An additional exchange rate factor is added for international stocks.

Ammann and Zingg (2008) find no evidence of persistence in pension fund or investment foundation performance.

Hong Kong
In Hong Kong, the Mandatory Provident Fund (MPF) system was implemented on December 1, 2000. Under this system, most employees and their employers are required by law to make monthly contributions to a MPF, which are based on the level of salary and the period of employment. These MPFs are managed by approved private organizations according to criteria set out by the government.

There are three types of MPF schemes:
 * Master Trust Schemes: the most common type of MPF scheme, open to the employees of participating employers, self-employed  persons and persons with accrued benefits to be transferred from other schemes.
 * Employer-sponsored Schemes: membership in this type of scheme is limited to the employees of a single employer and its associated companies.
 * Industry Schemes:schemes specially established for employees of the catering and construction industries, particularly casual employees (i.e. workers employed on a day-to-day basis or for a fixed period of less than 60 days).

FTSE provides a series of MPF tracking indexes.

According to the MPF Schemes Authority fee comparative platform, the average FER (fund expense ratio) of the available funds in the MPF is 1.70%.