Institutional asset owners had a sixth consecutive year of positive returns in 2014, gaining approximately 7 percent at the median for the year, according to just published data from Northern Trust Universe. The gain was about half of the annual median return in 2013.
The Northern Trust Universe tracks the performance of about 300 large US 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.
For the 12 months ended December 31, 2014, Corporate ERISA plans generally performed best among all plan types with a median return of 8.5 percent. Public Funds had a median return of 6.8 percent for the year, and Foundation & Endowment plans had a 5.9 percent median return for the year.
Following slightly negative returns in the third quarter, all plan types at the median had a positive fourth quarter. Corporate ERISA plans gained 2.4 percent at the median in the fourth quarter, while Public Funds gained 1.3 percent. Foundation & Endowment plans followed with a return closer to 1 percent.
“The fourth quarter marked a rebound from the previous quarter, spurred by strong US equity gains and more modest gains in the fixed income sector,” said Bill Frieske, senior performance consultant, Northern Trust Investment Risk & Analytical Services. “Yearly performance was also robust across all plan types, but smaller than last year’s gains, in part due to higher volatility and a weak international equity market.”
In 2013, Public Funds returned 16.1 percent at the median, while Foundation & Endowment plans followed with a median gain of 15.2 percent. Corporate ERISA plans returned 12.6 percent at the median during 2013.
Asset allocation for Northern Trust Universe plans was a critical determinant of overall performance in the fourth quarter. Northern Trust’s findings showed:
- Corporate ERISA plan returns were helped by allocating to domestic fixed income (39% at the median) and US equity (29% at the median), which was the best returning asset class in the quarter with a median gain of just over 5%.
- Public Funds were supported by a large allocation towards US equity (34% at the median), but hurt by allocating to international equity (23% at the median), which had a -3% median return in the quarter.
- Foundation & Endowment plan returns were dampened by a large allocation towards private equity (24% at the median), which returned only 1% at the median in the quarter, and further diminished by a significant allocation to international equity (12% at the median).
Looking at asset allocation over the last year, corporate pension plans generally continued to move on a path of de-risking, the process by which plan sponsors move from a risk-tolerant to a more risk-averse asset allocation as their plans mature. By the end of 2014, corporate pension plans tended to hold a larger allocation to fixed income than US equity for the first time in years. Public Funds continued to move money into private equity and international equity. The median allocation to private equity, for public plans, went from 1.6 percent at the end of 2013 to just over 5 percent currently. Foundations & Endowment plans reduced their allocation to fixed income from 16 percent to 11 percent, while continuing to add to hedge funds and private equity.
© 2015 PEPD • Private Equity’s Leading News Magazine • 2-3-15
