Institutional plan performance was flat in the second quarter of 2013, with the median plan in the Northern Trust Universe losing about 0.1%, as weak returns from fixed income and international equities cancelled 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 US$855 billion, which subscribe to Northern Trust performance measurement services.
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"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% in the second quarter, while Public Funds gained 0.1% and Corporate ERISA plans lost 0.9% at the median, according to Northern Trust Universe data.
The median U.S. equity program in the Northern Trust Universe gained 2.8% in the quarter (slightly ahead of the Russell 1000 Index) while the median fixed income program lost 2.9% (compared to a 2.3% loss for the Barclays Aggregate Bond Index). Alternative asset classes had a positive quarter, with private equity programs up 3.7%, real estate up 2.3% and hedge funds gaining 1.8% 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% at the median for the 12-month period, up from a 1.4% gain in the prior year. Many state and local government plans end their fiscal year on June 30.
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By GlobalData"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% (compared to 21.2% for the Russell 1000 Index) and non-U.S. equity programs returned 15.8% 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% to non-U.S. equities at the median, compared to a weighting of about 11% in Corporate ERISA and Foundations & Endowments.
