All Plan Types Record Annual Gains of 5 Percent or Greater
February 09, 2015 11:49 AM Eastern Standard Time CHICAGO–(BUSINESS WIRE)–Institutional asset owners had a sixth consecutive year of positive returns in 2014, gaining approximately 7 percent at the median for the year, according to Northern Trust Universe data.
The gain was about half of the annual median return in 2013.
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.
For the 12 months ended December 31, 2014, Corporate ERISA plans generally performed best among all plan types with a median return of 8.5 percent. Public Funds had a median return of 6.8 percent for the year, and Foundation & Endowment plans had a 5.9 percent 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 percent at the median in the fourth quarter, while Public Funds gained 1.3 percent. Foundation & Endowment plans followed with a return closer to 1 percent. “The fourth quarter marked a rebound from the previous quarter, spurred by strong U.S. equity gains and more modest gains in the fixed income sector,” said Bill Frieske, senior performance consultant, Northern Trust Investment Risk & Analytical Services.
“Yearly performance was also robust across all plan types, but smaller than last year’s gains, in part due to higher volatility and a weak international equity market.” In 2013, Public Funds returned 16.1 percent at the median, while Foundation & Endowment plans followed with a median gain of 15.2 percent. Corporate ERISA plans returned 12.6 percent at the median during 2013.
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 allocating 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 percent at the end of 2013 to just over 5 percent currently. Foundations & Endowment plans reduced their allocation to fixed income from 16 percent to 11 percent, while continuing to add to hedge funds and private equity.
Longer-term returns as of December 31, 2014 were as follows:
4th Qtr 1 Yr 3 Yr 5 Yr
ERISA 2.4% 8.5% 11.9% 10.4%
Public Funds 1.3% 6.8% 11.9% 10.2%
& Foundations 1.1% 5.9% 11.4% 8.9%
About Northern Trust Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of asset servicing, fund administration, asset management, fiduciary, and banking solutions for corporations, institutions, families, and individuals worldwide. Chicago-based Northern Trust has offices in 19 states, Washington, D.C., and 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of December 31, 2014, Northern Trust had assets under custody of US$6 trillion, and assets under investment management of US$934.1 billion. For 125 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com and follow us on Twitter @NorthernTrust.