Institutional asset owners recorded a median gain of 0.2 per cent in Q2, according to Northern Trust Universe data. This marks a drop from the 4 per cent median gain in the second quarter last year and 2.3 per cent median gain in the previous quarter.
The Northern Trust Universe tracks the performance of about 300 large US institutional investment plans, with a combined asset value of approximately USD899 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 per cent at the median in the second quarter. Public Plans returned 0.4 per cent and the median Foundation & Endowment plan returned 0.5 per cent. 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,” says 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 US fixed income (36.5 per cent 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 per cent at the median), the best returning asset class in the quarter, and international equity (24.7 per cent at the median).
• Foundation & Endowment plan returns were supported by a large allocation towards hedge funds (22.5 per cent at the median) and private equity (24 per cent at the median).
In the second quarter private equity was the best returning asset class with the median private equity program up 6 per cent. International equity was next at about 5 per cent. The median US equity program was up 2.6 per cent, hedge funds and real estate were both up about 1.3 per cent, and the median bond program was up only 0.2 per cent.
Corporate pension plans continue to have a larger allocation to fixed income than to US 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 per cent at the end of 2014 to 6.3 per cent as of the end of the second quarter. Foundation & Endowment plans reduced their allocation to fixed income from 16 per cent to 11.8 per cent, while continuing to allocate to hedge funds and private equity.
