Investing November 10, 2014

Investments in Real Assets Surge Among U.S. Institutions

In an effort to diversify their portfolios, institutions are making sizable investments in real assets and are planning to increase their level of activity next year, according to a Greenwich Associates report.
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Data from Real Assets: An Increasingly Central Role in Institutional Portfolios reveals that a majority of institutions active in real assets have target allocations in the realm of 10% of total portfolio assets. Approximately one in five institutions will increase their target allocations from current levels as a part of changes in their investment strategy, while a similar number will begin using new categories of real assets for the first time.

When investing in these private and listed real assets, including real estate, infrastructure, farmland, timber and precious metals, institutions value the expertise of their asset managers. Their reliance on expertise reflects institutions’ unfamiliarity with real assets and the complexity associated with the investments.

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“The experiences of institutions with significant investments in real assets strongly suggest that institutional investors will be more satisfied with their results if they invest with managers with high levels of demonstrated expertise,” says Andrew McCollum, Greenwich Associates consultant. “In many cases, these will be specialist managers with long track records in specific real-asset categories.”

Investing November 10, 2014

Equities Hurt Master Trust Returns in Q3

Equities contributed to negative returns in the third quarter for the U.S. Master Trust Universe, says BNY Mellon.
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The median return of the BNY Mellon U.S. Master Trust Universe was -0.83% for the third quarter of 2014, ending four straight quarters of positive results. However, for the twelve months ending September 30, 2014, the median plan returned +10.16%.

“Equities were negative contributors to asset owners in the third quarter,” says John Houser, senior consultant for BNY Mellon’s Global Risk Solutions group. However, he notes that over the full year, U.S. equities continue to outperform all asset classes with a return of 15.99%, followed by real estate at 12.30%.

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Twenty-one percent of plans in the BNY Mellon Master Trust universe returned positive results during the quarter, and 23% of plans matched or outperformed the custom policy return for Q3.

Endowment plans recorded the highest median return (-0.46%), followed by Corporate plans (-0.73%). Taft-Hartley plans returned -0.87% for the quarter, while health care plans returned -0.95%. Public plans (-1.06%) and Foundations (-1.18%) were the worst performing plan types.

U.S. equities posted a quarterly median return of -0.58%, versus the Russell 3000 Index return of 0.01%. Non-U.S. equities saw a median return of -4.80%, slightly ahead the Russell Developed ex U.S. Large Cap Index result of -5.79%. U.S. fixed income had a median return of 0.08%, versus the Barclays Capital U.S. Aggregate Bond Index return of 0.17%. Non-U.S. fixed income had a median return of -3.51%, versus the Citigroup Non-U.S. World Government Bond Index return of -5.38%. Real estate had a median return of 2.46%, versus the NCREIF Property Index result of 2.63%. 

The average asset allocation in the BNY Mellon U.S. Master Trust Universe for the third quarter was: U.S. equity 26%, U.S. fixed income 26%, non-U.S. equity 17%, non-U.S. fixed income 1%, real estate 4%, cash 2%, and alternatives/other 24%.

With a market value of more than $2.5 trillion and an average plan size of $3.6 billion, the BNY Mellon U.S. Master Trust Universe consists of 685 corporate, foundation, endowment, public, Taft-Hartley, and health care plans.

 

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