In the second quarter of 2015, institutional asset owners recorded a median gain of 0.2 percent, according to Northern Trust Universe data. This marks a drop from the 4 percent median gain in the second quarter last year and 2.3 percent median gain in the previous quarter.
The Northern Trust Universe tracks the performance of about 300 large U.S. institutional investment plans, with a combined asset value of approximately $899 billion, which subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.
There was a noteworthy divergence of returns among plan types in the second quarter of 2015. Corporate ERISA plans returned -1.6 percent at the median in the second quarter. Public Plans returned 0.4 percent and the median Foundation & Endowment plan returned 0.5 percent. Corporate pension plans moved from being the highest-returning plan type in the previous quarter to the worst-returning plan type in the second quarter. All plan types were down by at least 1.5 percentage points compared to the preceding quarter.
“Institutional asset owners saw significantly reduced median gains in the second quarter. For corporate ERISA plans their larger allocation to longer duration bond markets tended to drag down returns into negative territory. For Public Funds, their larger allocation to private equity and international equities enabled them to achieve very modest gains. Foundation & Endowment plans were supported by hedge funds and private equity,” said Bill Frieske, senior investment performance consultant, Northern Trust Investment Risk & Analytical Services. “Second quarter returns were significantly impacted by the uncertainty in Greece and the prospect of a Federal Reserve interest rate hike.”
Northern Trust’s findings generally showed:
• Corporate ERISA plan returns were negatively affected by a large allocation to U.S. fixed income (36.5 percent at the median), particularly bonds with a longer duration profile. The second quarter saw interest rates go up, which is a poor environment for bonds and made worse with longer duration bond positions.
• Public Funds were bolstered by a large allocation towards private equity (6.3 percent at the median), the best returning asset class in the quarter, and international equity (24.7 percent at the median).
• Foundation & Endowment plan returns were supported by a large allocation towards hedge funds (22.5 percent at the median) and private equity (24 percent at the median).
In the second quarter private equity was the best returning asset class with the median private equity program up 6 percent. International equity was next at about 5 percent. The median U.S. equity program was up 2.6 percent, hedge funds and real estate were both up about 1.3 percent, and the median bond program was up only 0.2 percent.
Corporate pension plans continue to have a larger allocation to fixed income than to U.S. equity. Public Funds continue to move money into private equity and international equity. The median allocation to private equity for Public Funds has gone from 1.6 percent at the end of 2014 to 6.3 percent as of the end of the second quarter. Foundation & Endowment plans reduced their allocation to fixed income from 16 percent to 11.8 percent, while continuing to allocate to hedge funds and private equity.
Longer-term returns as of June 30, 2015 were as follows:
2nd Qtr 1 Yr 3 Yr 5 Yr
Corporate ERISA -1.6% 2.8% 10.2% 11.0%
Public Funds 0.4% 3.3% 11.2% 11.3%
Foundations & Endowments 0.5% 3.2% 10.4% 10.0%
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has offices in the United States in 19 states and Washington, D.C., and 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2015, Northern Trust had assets under custody of US$6.2 trillion, and assets under management of US$946 billion. For 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit northerntrust.com or follow us on Twitter @NorthernTrust.
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