Equity Returns Boost Performance for Institutional Plan Sponsors

Institutional plan sponsors recorded an eighth consecutive quarter of investment gains in the three months ending September 30, returning 3.3% at the median, according to Northern Trust Universe data. Institutional plan sponsors in Q3 posted an eighth consecutive quarter of positive investment returns.

“The primary driver of the improved results has been a sharp rise in equity prices: the median total equity program in our Universe has returned 14.8% annually since the end of the financial crisis,” says Mark Bovier, regional head of Investment Risk and Analytical Services at Northern Trust.

Public Funds gained 3.6% at the median in the second quarter, slightly ahead of Corporate Employee Retirement Income Security Act (ERISA) plans, at 3.2%, and Foundations & Endowments, at 3.1%.

“A relatively large allocation to international equities in Public Funds helped buoy returns as non-U.S. stocks were the best-returning asset class in the third quarter,” says Bill Frieske, senior investment performance consultant, Investment Risk and Analytical Services. “Public Funds had a median allocation of almost 17% to non-U.S. equities while Corporate ERISA plans and Foundations & Endowments both had allocations closer to 12%.”

While Corporate ERISA plans have the largest allocation to fixed income, they also have substantial allocations to long-duration, high yield, and emerging market debt. Those subsets of the fixed income market returned noticeably more than traditional core bonds in the third quarter, according to Northern Trust. Foundations & Endowments benefited from a relatively small allocation to fixed income, which was the weakest returning asset class in the quarter, but a larger allocation to alternatives weighed on relative performance.

The Northern Trust Universe tracks the performance of approximately 300 large U.S. institutional investment plans, with a combined asset value of approximately $902.7 billion, which subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.