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How the world's largest retirement funds invest

The world's 5 largest retirement funds ranked by assets are Japan ($1.7 Trillion),  Norway ($1.3 Trillion), South Korea ($765 Billion), U.S. Federal Retirement Thrift ($650 Billion), and ABP of Netherlands ($600 Billion).  With such a large size, all these funds have a large portion in public equities (stocks) ranging from 42% to almost 73%.  Their bond allocations range from 25% to 50% with the remaining in alternatives including real estate from 2.5% to 14%.

Ranked By Total Assets

FundCountryTotal Assets (millions)
Government Pension InvestmentJapan$1,719,987
Government Pension FundNorway$1,305,920
National PensionSouth Korea$765,446
Federal Retirement ThriftU.S.$651,124
ABPNetherlands$607,367

complete list https://www.pionline.com/interactive/worlds-largest-retirement-funds-2021

 #1 Government Pension Investment, GPIF, Japan - $1.7T

Details can be found here: https://www.gpif.go.jp/en/
Allocation Details can be found here: https://www.gpif.go.jp/en/performance/2021_2Q_1105_eg.pdf
 
The GPIF has straight forward allocation.  50% Equities and 50% Bonds.  Further, they break the asset classes in half, by investing 50% in domestic and 50% in international securities.  So 25% Japanese Equities, 25% International Equities and 25% Japanese Fixed Income and 25% International Fixed Income.

To here more details, there is an excellent interview with the former CIO Hiro Mizuno on Capital Allocators with Ted Seides https://capitalallocators.com/podcast/changing-the-game/.  During the interview another interesting thing mentioned is the use of active managers for equities only being about 10% (as equity markets are fairly efficient).  For the few managers selected to manage equities, he also describes how he structures the incentives to be more performance based, but provides longer commitments like up 5 years (more similar to Private Equity).  Fixed Income is different as benchmarks are easier for managers to beat.  Finally, because of the massive size, he re-framed the general approach of the Fund to understand that they are a universal owner and to focus on using investments to them more sustainable in the long run which means improving society and the environment.  For example, special layer of fees for active managers that take a more active role in the companies they invest in by providing stewardship to match the long term.

#2 Government Pension Fund, The Fund, Norway - $1.3T

Details can be found here: https://www.nbim.no/en/
Current holdings can be found here: https://www.nbim.no/en/the-fund/investments/#/
 
The strategic benchmark of the found is 70% FTSE Russell Group (equities) and 30% Bloomberg Barclays (bonds).  Norges Bank then constructs a portfolio that differs somewhat from the benchmark in order to exploit the fund's special characteristics and competitive advantages (for example by investing in real estate and renewable energy and infrastructure). The expected volatility, or tracking error, can deviate by 1.25%.  The mandate also sets limits to re-balance when the portfolio's equity value drifts 2%.  Further the mandate permits up to 7% in unlisted real estate and up to 2% in unlisted renewable energy infrastructure.  The current aim is to build up the real estate portfolio to 5%.

Currently the Portfolio is 72.8% Equities, 24.7% Fixed income and 2.5% real estate

#3 National Pension, South Korea - $765B

Portfolio Overview can be found here: https://fund.nps.or.kr/jsppage/fund/mcs_e/mcs_e_01.jsp
 
The National Pension Fund has a 5 year plan to allocate 50% Equity, 35% Fixed Income and 15% Alternatives.
 
The current Portfolio has:
 
20.3% Domestic Equity (52% managed in house)
37.3% Domestic Fixed Income (86.3% managed in house)
25.7% Global Equity (38.9% managed in house)
5.8% Global Fixed Income (46.5% managed in house)
3.6% Real Estate
2.9% Infrastructure 
3.9% Private Equity
 
( 46% Equity, 43% Fixed Income, 11% Alternatives )

#4 Federal Retirement Thrift, United States - $651B

Details can be found here: https://www.tsp.gov/

The Federal Retirement Thrift Investment Board is an agency that administers the Thrift Savings Plan, which is a retirement savings and investment plan for federal employees and members of the uniformed services, including the Ready Reserve.  This is similar to the private sector 401(k) plan.  More specifically, the fund is a defined contribution plan and not a defined benefit plan (like most other pensions).  This means that individuals have funds set aside for them where they can allocate vs a large pool that is divided.  With this structure, it doesn't emphasize a portfolio strategy and allocation, instead it providers beneficiaries with choices into broadly defined funds. G - short term Government Securities, F - Fixed Income that track the Bloomberg Barclays U.S. Aggregate Bond Index, C - Common Stock that tracks the Standard & Poor's 500 (S&P 500) Index, S - Small Capitalized Stocks that track the Dow Jones U.S. Completion Total Stock Market (TSM) Index and I - International Stocks that track the MSCI EAFE (Europe, Australasia, Far East) Index.  They also seem to appear to offer Lifecycle funds that systematically balance based on expected retirement date (which is probably similar to Vanguard's Target Date Funds: https://www.unpackinvesting.com/2021/10/vanguard-target-retirement-funds.html).

The furthest out Lifecycle fund is for 2065 and it has: 49.7% Common Stocks, 34.7% International Stocks, 14.6% Small Capitalized Stocks, 0.6% Fixed Income and 0.4% Government Securities. (99% Equity and 1% Fixed Income).

The closest Lifecycle fund is for 2025 with: 49.6% Government Securities, 23% Common Stock, 15.5% International Stocks, 6.2% Fixed Income and 5.8% Small Capitalized Stocks. ( 44.3% Equity and 55.7% Fixed Income)

#5 ABP, Netherlands - $607B

Details can be found here: https://www.abp.nl/english/investments/

They have achieved an average of 7% a year for the past 20 years but expect going forward only 4% in the coming years.  Their portfolio looks has 45.8% Equities, 28.8% Bonds and 25.5% Alternatives.
 

Summary

FundCountryTotal Assets (millions)EquityFixed IncomeAlternatives
Government Pension InvestmentJapan$1,719,98750.0%50.0%-
Government Pension FundNorway$1,305,92072.8%24.7%2.5%
National PensionSouth Korea$765,44646.0%43.0%11.0%
Federal Retirement ThriftU.S.$651,124---
ABPNetherlands$607,36745.8%28.8%25.5%

From looking at the top 5, it looks like all plans have close to 50% Equities and at around at least 30% Fixed Income with the remaining up to 20% for alternative investments. 

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