Institutional Asset Owners Begin 2015 with Solid Returns

Strong dollar, weak oil… amid volatility

May 06, 2015  –(BUSINESS WIRE)–Institutional asset owners gained a median 2.3 percent in the first quarter of 2015, according to Northern Trust Universe data. This compares to a median gain of 2 percent in the prior year.

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.

All plan types exceeded their performance from a quarter ago and recorded gains of 2 percent or greater at the median. Corporate pension plans generated the highest rate of return for the fourth consecutive quarter. Corporate ERISA plans gained a median 2.8 percent in the first quarter, while the median Public Fund was up 2.4 percent and the median Foundation & Endowment plan was up 2.1 percent. Although Foundation & Endowment plans had the smallest return at the median, their performance doubled from the fourth quarter.

A diverse set of drivers

“Across all plan types institutional asset owners generally continue to see gains spurred by a diverse set of drivers. For corporate ERISA plans their larger allocation to longer-duration bonds bolstered performance. For Public Funds, their larger allocation to the better performing international equities lifted them. The performance of Foundation & Endowment plans was supported by hedge funds and private equity,” said Bill Frieske, senior investment performance consultant, Northern Trust Investment Risk & Analytical Services.

“However, the first quarter was highly volatile and overall gains were largely impacted by a stronger dollar and weaker oil prices.”

Northern Trust’s findings showed:

  • Corporate ERISA plan returns were helped by allocating to U.S. fixed income, particularly bonds with a longer duration profile than the other two major plan types as interest rates continued to decline.
  • Public Funds were supported by a large allocation towards international equity (24 percent at the median), the best returning asset class in the quarter.
  • Foundation & Endowment plan returns were boosted by a large allocation towards hedge funds (21 percent at the median).

In the first quarter international equities were the best returning asset class. The median international equity program was up 4 percent. Hedge funds and real estate were next at about 3 percent. The median U.S. equity program was up 2.2 percent while the median bond program was up 1.7 percent.

Corporate ERISA plans have generally engaged on multi-year programs to lengthen the duration of fixed income securities in a drive to more closely align the duration of the assets with the duration of their liabilities. In the first quarter corporate ERISA fixed income programs returned 3 percent while Public Funds and Foundations & Endowment plans generated fixed income returns closer to 1 percent. Mid- and small-cap stocks outperformed large cap stocks in the quarter.

Longer-term returns as of March 31, 2015 were as follows:

                                                     1st Qtr     1 Yr     3 Yr       5 Yr

ERISA                                            2.8%      8.3%    10.3%    10.2%

Public Funds                                 2.4%      7.0%    10.3%    10.0%

Foundations & Endowments       2.1%      6.3%     9.6%      8.8%


About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has offices in the United States in 19 states and Washington, D.C., and 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of March 31, 2015, Northern Trust had assets under custody of US$6.1 trillion, and assets under management of US$960.1 billion. For 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation.

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