New report highlights pension fund risk disparities

June 5, 2025

A new study from Ortec Finance examining the world’s largest pension systems is challenging traditional asset allocation thinking by applying a Total Portfolio Approach (TPA) through a factor lens.

By focusing on macro-level drivers such as equity, credit, real rates and inflation, the analysis uncovers meaningful differences—and surprising similarities—in how pension funds across Canada, the Netherlands, Switzerland, the UK and the US are exposed to risk and return.

The analysis examines the top 30 pension funds in each market by assets under management.

This alternative approach provides an additional perspective of how pension funds are exposed to market dynamics. Using Ortec Finance’s Asset-Liability Management (ALM) software GLASS and its proprietary Scenario Set, the study calculates risk and return values to highlight these factor exposures.

In contrast to the asset-based view—where most markets show a dominant allocation to fixed income (with the US as an exception, leaning more toward public equities)—the factor lens reveals that Equity Factor dominates across all five countries. This single factor contributes between 40% and 60% of total return and 55% to 70% of total risk, making it the most significant driver across global pension portfolios.

While Equity Factor leads on risk and return, Real Rates and Inflation are identified as more efficient in terms of return per unit of risk.

However, there is notable divergence in the UK. More than one-third of its top 30 pension funds show a higher factor exposure to Credit and Inflation than to Equity Factor. This dispersion stands in contrast to the relatively consistent risk-return breakdown observed in the US, Canada, the Netherlands, and Switzerland.

By leveraging a Total Portfolio Approach with a factor lens, the study offers pension funds a deeper understanding of risk exposures and the external forces shaping performance, providing valuable insights for asset-liability alignment and strategic planning.

Read the full report here.