Institutional Plan Sponsors See Modest Gains in Q1

Institutional plan sponsors also saw modest gains in the international equity and fixed-income markets during the first quarter, with median returns led by the corporate Employee Retirement Income Security Act (ERISA) plans with a return of 2.8%. Public funds posted a return of 1.9% for the quarter, and foundations and endowments posted a return of 1.6%. Corporate ERISA plans recorded their third consecutive quarterly gain, while the segments of public funds and foundations and endowments generated positive returns for the seventh straight quarter.

“Compared to the fourth quarter of 2013, plan sponsors continued to see positive gains but at a slower rate. All asset classes saw positive returns, with private equity, real estate and domestic fixed income performing the best,” says Bill Frieske, senior performance consultant, Northern Trust Investment Risk and Analytical Services, based in Chicago. “Modest but sustained growth, especially in the equity and fixed income sectors globally, helped propel institutional plan sponsors to another positive quarter.”

Asset allocations per segment for the first quarter were as follows:

• Public funds were weighted towards U.S. equity (32.7%) and international equity (22.9%);
• Foundations and endowments were weighted towards private equity (23.3%) and U.S. equity (20.2%);
• Corporate ERISA plans were weighted towards U.S. fixed income (36.8%) and U.S. equity (29.3%).

The Northern Trust analysis also shows that the U.S. real estate and fixed-income sectors provided plan sponsors with modest gains in the first quarter. Overall, the best performing investment program in the Northern Trust Universe was the private equity program, which returned 4.2% in the quarter at the median. The median real estate investment program returned 2.8%, while the U.S. fixed-income program returned 2.2%. Domestic equity returned 1.6% and international equity returned 0.6%.

Volatility, particularly in the international equity sector, helped to dampen overall gains, according to the analysis. Corporate ERISA plans, with their heavy weighting towards U.S. fixed-income and U.S. equity investment programs, managed to perform slightly better than their counterparts. Public funds did second-best in terms of overall return, due in part to relatively flat returns from international equity markets.

Despite a relatively large allocation to private equity, foundations and endowments were dragged down by the more modest performance of domestic equity. Foundations and endowments also had a significant allocation towards international equity, at 12.6%, and domestic fixed income, at 12.1%, which helped to dampen the overall gain for the segment.

Decreasing interest rates, coupled with decelerating earnings growth in the U.S. and continued sluggish growth abroad, created a good environment for bonds in the first quarter, according to the analysis. High yield debt was the best returning subset of fixed income, increasing 3%, while emerging market debt was at 2.8%.

Mid-cap managers had the best returns in the first quarter, with returns of 2% at the median, while large-cap managers returned 1.7%. Small-cap returns came in at 0.8% for the quarter.

The Northern Trust Universe tracks the performance of about 300 large U.S. institutional investment plans, with a combined asset value of approximately $899 billion, which subscribe to Northern Trust performance measurement services.

Northern Trust Corporation is a provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. More information about them is available at http://www.northerntrust.com.