Institutional plan sponsors in the Northern Trust Universe gained about 4.5 percent at the median in the third quarter, as U.S. and international equities bounced back from a negative performance in the prior quarter and fixed income assets continued to generate modest positive returns.
The Northern Trust Universe tracks the performance of about 300 large U.S. institutional investment plans, with a combined asset value of approximately $748 billion, that subscribe to Northern Trust performance measurement services.
"A strong rebound in the equity markets boosted results for institutional investors in the third quarter, and over longer time periods," said William Frieske, senior performance consultant, Northern Trust Investment Risk & Analytical Services. "While the financial markets have had some negative quarters in recent years, the median plan sponsor in our Universe now has a three-year return of nearly 9 percent. The mix of asset classes in these institutional plans, including private equity and fixed income, has helped to moderate the effects of market volatility and produce steady gains over time."
In the third quarter, Corporate Pension Plans, for private-sector employees, were the best-performing segment, gaining approximately 5 percent at the median for the three months ending September 30, 2012. Public Funds- pension plans for public employees- gained 4.7 percent and the Foundations & Endowments segment- funds managed for philanthropic organizations, colleges and universities- rose 4.3 percent in the quarter, according to Northern Trust Universe data.
Positive returns in the third quarter were driven by U.S. equities, which make up 30 percent or more of all assets in most institutional portfolios in the Northern Trust Universe. The median U.S. Equity program in the Universe gained almost 6.5 percent in the third quarter, after dropping 5 percent in the previous quarter. Other asset classes also performed well: the median International Equity program returned 7.2 percent in the quarter, and the median Fixed Income program gained 2.9 percent. International bonds, especially those from Emerging Markets, outperformed other fixed income segments but are a relatively small allocation in most plans.
"Looking at a longer time horizon, U.S. fixed income has produced the best returns over the last five years," Frieske said. "The median U.S. Fixed Income Program in the Northern Trust Universe gained 8 percent in the five years ending September 30, 2012, compared to a return of just 1.3 percent for U.S. Equity Programs and a 3.9 percent return for Private Equity Programs. Over the last three years, however, private equity has the edge. The median Private Equity Program return was 13.3 percent for three years, while U.S. Equities gained 12.8 percent and U.S. Fixed Income Programs returned 8.1 percent over that time period."
In the one-, three- and five-year periods, as of September 30, 2012, performance results for all plans in the Northern Trust Universe are:
1 Yr 3 Yr 5 Yr
Corporate Pension Plans 18.3% 10.4% 2.9%
Public Funds 16.7% 9.7% 2.3%
Foundations & Endowments 14.0% 8.2% 1.5%
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 16 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2012, Northern Trust had assets under custody of US$4.8 trillion, and assets under investment management of US$749.7 billion. For more than 120 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com or follow us on Twitter @NorthernTrust.