Institutional plan sponsors reaped a fourth consecutive year of positive investment returns in 2012, with equity markets contributing a large portion to the 12.3 percent gain for the median plan in the Northern Trust Universe. Corporate Pension Plans and Public Funds, with higher allocations to public equities, had stronger returns than the Foundations & Endowments segment in the 12 months ending December 31, 2012.
The Northern Trust Universe tracks the performance of about 300 large U.S. institutional investment plans, with a combined asset value of approximately $760 billion, which subscribe to Northern Trust performance measurement services.
"With the double-digit gains of 2012, the median plan in the Northern Trust Universe has not had a down year since the 25 percent drop in 2008," said William Frieske, senior performance consultant, Northern Trust Investment Risk & Analytical Services. "Rising, if volatile, stock markets have driven much of the positive performance since that historic financial collapse. As a result, the median sponsor now has a three-year return of just over 8.4 percent."
Public equities were again key to performance in 2012, with programs in the Northern Trust Universe returning 16.9 percent at the median for the year. International equity programs gained 18.2 percent at the median, while the median U.S. equity program gained 16 percent. The median private equity program, meanwhile, had a 10 percent return for the year, and total fixed income programs gained 8.8 percent at the median.
Corporate Pension Plans had the highest returns in the Northern Trust Universe, gaining 13.6 percent at the median in 2012. Public Funds - pension plans for public employees - gained 12.9 percent and the Foundations & Endowments segment - funds managed for philanthropic organizations, colleges and universities - rose 11.5 percent for the year. In the fourth quarter, Public Funds led with 2.1 percent, Corporate plans gained 1.86 percent and F&E plans returned 1.81 percent at the median, according to Northern Trust Universe data.
"Corporate plans benefited from their higher allocations to public equities - 47 percent at the median - and just an 11 percent allocation to PE and hedge funds," Frieske said. "Conversely, F&E plans had 40 percent allocated to PE and hedge funds and 32 percent allocated to equities, at the median, and as a result lagged the pension segment by 200 basis points for the year."
Asset class performance over 3-year and 5-year periods
Over the three years ending December 31, 2012, private equity programs have had the highest asset class return in the Northern Trust Universe, gaining 12.9 percent at the median. U.S. equities were next, with 11 percent returns at the median, and U.S. fixed income gained 8.1 percent. Longer-term, the best returning asset class over the five years was U.S. fixed income, which gained 7.6 percent over that period, compared with a median return of just 2.2 percent for both U.S. equities and private equity programs, and a loss of 2.1 percent for international equity programs in that time.
In the one, three- and five-year periods, as of December 31, 2012, performance results for all plans in the Northern Trust Universe are:
1 Yr 3 Yr 5 Yr
Corporate Pension Plans 13.6% 10.0% 3.6%
Public Funds 12.9% 9.2% 2.8%
Foundations & Endowments 11.5% 7.5% 2.1%
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 December 31, 2012, Northern Trust had assets under custody of US$4.8 trillion, and assets under investment management of US$758.9 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.
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