Global pension assets grew to an estimated $36.4 trillion in 2016, an increase of 4.3% since the end of 2015, Willis Towers Wilson reported Monday.

The U.S. continues to be the largest market for pension assets, with 61.7% of the total, trailed by the U.K. with 7.9% and Japan with 7.7%. Together they account for 77.3% of total assets.

In U.S. dollar terms, the pension asset growth rates of these three biggest markets last year were 5.1%, 1.3% and 5.1%.

“Pension funds worldwide made some progress against their headwinds in 2016,” Roger Urwin, global head of investment content at Willis Towers Watson, said in a statement.

“This was largely because equity markets and alternative asset classes produced gains ahead of expectations.”

The report comprises hard data collected as of year-end 2015 (except for Australia and Brazil, whose data are from June 2016) and from a variety of secondary sources, and on year-end 2016 estimates based on index movements.

The report said global pension assets relative to GDP reached 62% in 2016, a decrease of 18% from the 2015 ratio of 80%.

The comparison of total pension fund assets within each market to GDP was sourced from the International Monetary Fund, the report said.

The Netherlands had the highest ratio of pension assets to GDP at 168%, followed by Australia at 126%, Switzerland at 123% and the U.S. at 121%.

During the last 10 years, the pension assets-to-GDP ratio in the U.S. increased by 21 percentage points.

Asset Allocation

At the end of 2016, the average global asset allocation of the seven largest markets was 46% equities, 28% bonds, 24% real estate and other alternatives, and 3% cash. In the U.S. market, 49% went to equities, 22% to bonds, 27% to alternatives and 2% to cash.

The report said that since 1996, asset allocation to alternatives has increased, while allocation to equities and bonds has decreased.

During the past decade, defined contributions assets have grown at an annual rate of 5.6%, while defined benefit assets have grown at a slower 2.6% per annum, according to the report.

DC assets represent 48.4% of total pension assets in the seven largest markets, in line with the established trend toward their growing dominance.

DC is dominant in Australia and the U.S., with allocations of 87% and 60.1%. In contrast, Japan, Canada and the Netherlands have paltry allocations of 4.2%, 4.6% and 5.8%.

The report said Japan and Canada have begun to show signs of a shift to DC.

Faces of Change

The report listed several medium-term factors whose influence on pension fund development is growing.

1.Improved recognition of return on governance feeds through in increased attention and growing focus on performance from all sources.

2. Funds’ focus on risk intensifies, both for those where the appetite for risk is trimmed from previous levels, and those needing risk for their situation.

3. DC becomes the dominant global model with its attendant risk transfer causing tension in the balance of ownership and control.

4. Strong competition for talent among funds increases, particularly on the leadership level.

5. A more effective “value chain” will emerge, where expense on various activities has a better value proposition than exists today. The use of passive approaches and smart beta is leading to modest fee compression.

6. The move toward more integrated approaches to managing environmental, social and governance factors and better stewardship exercised over ownership is gathering pace. This will require increased disclosure, measurement and analysis of extra-financial factors.

— Check out Active Management Isn’t Dead, but It’s Evolving: Vanguard’s Tom Rampulla on ThinkAdvisor.