Institutional plan performance was flat in the second quarter of 2013, with the median plan in the Northern Trust Universe losing about 0.1 percent, as weak returns from fixed income and international equities canceled out gains from U.S. equities in the three months ending June 30. The Northern Trust Universe tracks the performance of about 300 large U.S. institutional investment plans, with a combined asset value of approximately $855 billion, which subscribe to Northern Trust performance measurement services. “The specter of rising interest rates weighed on fixed income in the quarter, driving down prices for longer-duration bonds, which make up a large share of assets in Corporate ERISA plans,” said William Frieske, senior performance consultant, Northern Trust Investment Risk & Analytical Services. “Public Funds, with higher allocations to U.S. equities, and Foundations & Endowments, which invest more heavily in alternative assets, performed relatively better in the quarter.” The median plan in the Foundations & Endowments segment gained 0.3 percent in the second quarter, while Public Funds gained 0.1 percent and Corporate ERISA plans lost 0.9 percent at the median, according to Northern Trust Universe data. The median U.S. equity program in the Northern Trust Universe gained 2.8 percent in the quarter (slightly ahead of the Russell 1000 Index) while the median fixed income program lost 2.9 percent (compared to a 2.3 percent loss for the Barclays Aggregate Bond Index). Alternative asset classes had a positive quarter, with private equity programs up 3.7 percent, real estate up 2.3 percent and hedge funds gaining 1.8 percent at the median. For public pension funds, the second quarter ended a strong year of investment performance. The median Public Fund in the Northern Trust Universe gained of 12.2 percent at the median for the 12-month period, up from a 1.4 percent gain in the prior year. Many state and local government plans end their fiscal year on June 30.
“Public Funds benefited from greater exposure to equities, including international stocks, as U.S. equities and non-U.S. equities were the top two performing asset classes over the year,” Frieske said.U.S. equity programs in the Northern Trust Universe returned 22.2 percent (compared to 21.2 percent for the Russell 1000 Index) and non-U.S. equity programs returned 15.8 percent at the median for the 12 months ending June 30. While U.S. equity is a core allocation in all three segments, Public Funds allocated about 18 percent to non-U.S. equities at the median, compared to a weighting of about 11 percent in Corporate ERISA and Foundations & Endowments. Returns by segment in the one-, three- and five-year periods as of June 30, 2013 were:
|1 Yr||3 Yr||5 Yr|
|Corporate Pension Plans||10.8%||11.6%||5.7%|
|Foundations & Endowments||11.8%||10.2%||4.1%|