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Investing February 6, 2019
Institutional Investors See Worst Calendar Year Performance Since Great Recession
“Fixed income was something of a safe harbor in the fourth quarter, and Corporate ERISA plans benefited from larger allocations to bonds,” says Bill Frieske, with Northern Trust.
Reported by PLANSPONSOR Staff
Institutional plan sponsors lost 3.8% at the median in 2018, as fourth-quarter losses dragged down returns for the year, according to Northern Trust Universe data.
The median plan in the Northern Trust Universe lost 6.6% in the quarter ending December 31, 2018. U.S. equities turned sharply negative in the quarter, with the median U.S. equity program in the Universe losing almost 15% in the period. The fourth-quarter wiped out gains of 3.3% at the median through the third quarter and resulted in the worst calendar year performance for plans in the Universe since a nearly 25% loss in 2008 during the global financial crisis.
Corporate Employee Retirement Income Security Act (ERISA) plans had the best relative performance in the fourth quarter, losing 5.5% at the median, while the median plan in the Foundation & Endowment segment lost 6.3%, and the median Public Fund plan lost 7.3% in the quarter.
“Fixed income was something of a safe harbor in the fourth quarter, and Corporate ERISA plans benefited from larger allocations to bonds,” says Bill Frieske, senior investment performance consultant, Investment Risk and Analytical Services. “Weak results from hedge funds and domestic equities weighed on returns for Foundation & Endowment plans. Public Funds had the weakest results in the fourth quarter because they have the largest allocation to equities of any segment.”
The median total fixed income program in the Northern Trust Universe was up 0.6% in the fourth quarter. Alternative asset classes were a mixed bag: the median private equity program gained 3.0% in the quarter while the median hedge fund program lost approximately 5%, and the median real estate program was up slightly at 0.3%. The median total equity program—U.S. and international—lost 13.2% in the quarter.
The Northern Trust Universe tracks the performance of approximately 300 large U.S. institutional investment plans, with a combined asset value of approximately $925.7 billion, which subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.