Master Trusts Record Gains in 2014

Institutional asset owners had a sixth consecutive year of positive returns in 2014, gaining approximately 7% at the median for the year, according to Northern Trust Universe data.

For the 12 months ended December 31, 2014, Corporate Employee Retirement Income Security Act (ERISA) plans generally performed best among all plan types, with a median return of 8.5%. Public Funds had a median return of 6.8% for the year, and Foundation & Endowment plans had a 5.9% median return for the year.

Following slightly negative returns in the third quarter, all plan types at the median had a positive fourth quarter. Corporate ERISA plans gained 2.4% at the median in the fourth quarter, while Public Funds gained 1.3%. Foundation & Endowment plans followed with a return closer to 1%. 

Asset allocation for Northern Trust Universe plans was a critical determinant of overall performance in the fourth quarter. Northern Trust’s findings showed:

• Corporate ERISA plan returns were helped by allocating to domestic fixed income (39% at the median) and U.S. equity (29% at the median), which was the best returning asset class in the quarter with a median gain of just over 5%.
• Public Funds were supported by a large allocation towards U.S. equity (34% at the median), but hurt by allocations to international equity (23% at the median), which had a -3% median return in the quarter.
• Foundation & Endowment plan returns were dampened by a large allocation towards private equity (24% at the median), which returned only 1% at the median in the quarter, and further diminished by a significant allocation to international equity (12% at the median).

Looking at asset allocation over the last year, corporate pension plans generally continued to move on a path of de-risking, the process by which plan sponsors move from a risk-tolerant to a more risk-averse asset allocation as their plans mature. By the end of 2014, corporate pension plans tended to hold a larger allocation to fixed income than U.S. equity for the first time in years. Public Funds continued to move money into private equity and international equity. The median allocation to private equity, for public plans, went from 1.6% at the end of 2013 to just over 5% currently. Foundations & Endowment plans reduced their allocation to fixed income from 16% to 11%, while continuing to add to hedge funds and private equity.

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 performance measurement services as part of Northern Trust’s asset servicing offerings.