Institutional Investor Returns Pulled Down by Market Losses

Wilshire TUCS first quarter returns were weighed down by losses across all major asset classes.

Institutional assets tracked by the Wilshire Trust Universe Comparison Service (Wilshire TUCS) saw a median return of -0.47% for all plan types in the first quarter and a median one-year gain of 9.51%.

“This quarter marked the first negative quarter since third quarter of 2015,” says Jason Schwarz, president, Wilshire Analytics and Wilshire Funds Management. “Returns for the quarter pulled the one-year return of 9.51% for the year ending March 31, 2018, down from 14.72% for the year ending December 31, 2017.”

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

Wilshire TUCS first quarter returns were weighed down by losses across all major asset classes. The Wilshire 5000 Total Market Index returned -0.76% for the first quarter and 13.69% for the year ending March 31, 2018, while the MSCI AC World ex U.S. for international equities fell -1.18% in the first quarter, but gained 16.53% for the year. The Wilshire Bond Index also fell -1.82% in the first quarter, but gained 1.63% for the year.

This translated to median returns with a low of -0.95% for Corporate Funds with assets greater than $1 billion and high of 1.57% for Foundations and Endowments with assets greater than $500 million. One-year returns ran the gamut from a low median return of 6.55% for Taft Hartley Health and Welfare Funds to a median high of 12.02% for Foundations and Endowments with assets greater than $500 million.

“In first quarter, median returns for all plan types outperformed the 60/40 portfolio, which returned -1.18%,” notes Schwarz.

Among all Corporate Funds, the quarterly median return was -0.78%. Public funds returned -0.23%, while Foundations and Endowments posted a median quarterly return of -0.37%. Taft Hartley Defined Benefit Plans saw a quarterly return of -0.34%, and Taft Hartley Health and Welfare Funds saw a quarterly return of -0.25%.

State Pension Plans Reverse Two Consecutive Years of Return Declines

“A primary driver of the improvement in the funding ratio was the increase in global equity values for the 12-month period ending June 30, 2017,” notes Ned McGuire, managing director and a member of the Pension Risk Solutions Group of Wilshire Consulting.

The funding ratio of state pension plans rose 2.8 percentage points to 70.2% in fiscal year 2017, according to Wilshire Consulting.

A year ago, Wilshire Consulting’s annual state funding report uncovered a funding ratio of 67.4%, and this year’s increase notably reverses two consecutive years of aggregate funded ratio declines.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

“A primary driver of the improvement in the funding ratio was the increase in global equity values for the 12-month period ending June 30, 2017,” notes Ned McGuire, managing director and a member of the Pension Risk Solutions Group of Wilshire Consulting. “In fact, the estimated aggregate asset value is the highest since Wilshire began reporting on state retirement system funding levels.”

According to the report, for the 71 state-based retirement systems that reported actuarial data for 2017, pension assets grew by over 9% to reach $3,170 billion, from $2,901.7 billion in 2016. The aggregate Total Pension Liability (TPL) increased nearly 5% to $4,518 billion, from $4,304 billion in 2017.

Despite the increase in aggregate TPL, the aggregate shortfall is estimated to have decreased by $54 billion to $1,348 billion, down from $1,402. This decline in the aggregate shortfall is the result of the significant increase in aggregate assets to $3,170 billion, from $2,901.7 billion, Wilshire says.

Discount rates have trended lower over the past several years. This trend continued this year as nearly half of the plans studied lowered their discount rate. The range for discount rates in 2017 was 4.21% to 8.00% with a median of 7.25%, which is down 25 basis points from 2016.

Asset allocation varies greatly by retirement system. In aggregate, state pension plans had allocations to equity, including private equity, equal to 57.6% in 2017. Allocations to fixed income were equal to 22.8%, with the remaining 19.8% allocated to real assets, alternatives and cash.

The Wilshire 2018 Report on State Retirement Systems: Funding Levels and Asset Allocation is based on data gathered by Wilshire Consulting from the most recent financial and actuarial reports issued by 130 retirement systems sponsored by the 50 states and the District of Columbia. Of the 130 systems studied, 71 systems reported actuarial values on or after June 30, 2017 and the remaining 59 systems last reported prior to that date.

«