Institutional Investment Plans Perform Well in Q3

Strong returns from equities in general and from developed markets in Europe specifically gave plan sponsors a nice lift in the third quarter,” said William Frieske, senior performance consultant, Northern Trust Investment Risk and Analytical Services. “Plan sponsors have benefited by keeping it simple in 2013, with publicly traded equities leading the way and providing almost double the return of alternatives in the most recent quarter.”

The median plan in the public funds segment gained 4.9% in the third quarter, while corporate Employee Retirement Income Security Act (ERISA) plans gained 4.4%, and foundations and endowments returned 4.3%, according to Northern Trust Universe data.

Public funds were helped by a larger allocation to international equities, where the median investment program in the Northern Trust Universe gained 9.3% in the third quarter. The median public fund plan had 19.1% of its assets invested in international equity, while corporate ERISA plans had 11.8%, and foundations and endowments had 12% in that asset class, as of September 30.

U.S. equity programs returned 7% in the Northern Trust Universe (compared with 6% for the Russell 1000 Index) in the third quarter and 22% (compared with 20.76% for the Russell 1000) in the year-to-date through September 30. Private equity and real estate investment program returned less than 3% in the quarter, while returns for fixed income and hedge funds were closer to 1% during the three-month period.

Corporate ERISA plans have the largest allocation U.S. fixed income, a nearly 31.5% weighting at the median in the Northern Trust Universe as of September 30. Foundations and endowments invest more in alternatives than the other segments, with 23% allocated to private equity and 17.7% to hedge funds in the median plan.

Returns by segment as of June 30 for periods of one, three and five year include:

• Corporate pension plans: 9.7%, 9.9% and 8.7%, respectively;
• Public funds: 12.9%, 10.5% and 8.1%, respectively; and
• Foundations and endowments: 12.1%, 9.1% and 7%, respectively.

The Northern Trust Universe tracks the performance of about 300 large U.S. institutional investment plans, with a combined asset value of approximately $834 billion, which subscribe to Northern Trust performance measurement services.