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Institutional asset owners see rebound in Q4, says Northern Trust

In the fourth quarter of 2015, institutional asset owners gained approximately 2 per cent at the median, according to Northern Trust Universe data. This marked a significant rebound from the median loss of 4.6 per cent recorded in the third quarter.

The Northern Trust Universe tracks the performance of about 300 large US 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.
Public Funds had the best performance in the quarter with a return of 2.7 per cent at the median, while Foundations & Endowments were in the middle returning 1.9 per cent. Corporate ERISA plans came in third overall with a return of 1.8 per cent at the median. All plan types recorded gains of at least 5 percentage points compared to the previous quarter.
Equities helped institutional plans recover from losses in the previous quarter, with the Russell 3000 up 6.3 per cent and the MSCI EAFE index up 4.8 percent, said Bill Frieske, senior investment performance consultant, Northern Trust Investment Risk & Analytical Services.
“The driver for the relative strength of Public Funds was their larger allocation to equities,” says Frieske. “Public Funds had a 57 per cent allocation to equities at the median compared to 45 per cent for Corporate ERISA Plans and 42 per cent for Foundations & Endowments.
Corporate ERISA plans would have generated a higher return if not for their larger exposure to long-duration bonds, with long-duration bonds losing almost 1 per cent last quarter, he said. “Foundations & Endowments did not get any help from their larger allocation to private equity and hedge funds – the two asset classes were basically flat in the fourth quarter,” he said.
Domestically, the Russell 3000 out returned the median US Equity program in the fourth quarter by 50 basis points. Looking at international equities, the median plan performed much better. The median international equity program performed 65 basis points better than the index.
Northern Trust’s findings generally showed that corporate ERISA plan returns were dampened by a large allocation to US fixed income (38.1 per cent at the median), in addition to private equity (7.4 per cent at the median), while public Fund returns were boosted by a large exposure to US equity (33.8 per cent at the median) and international equity (20.9 per cent at the median).
In addition, Foundation & Endowment plan returns were negatively impacted by a large allocation towards private equity (23.9 per cent at the median), but supported by exposure to domestic equity (19.4 per cent at the median) and international equity (12.2 per cent at the median)
Looking at asset allocation in the fourth quarter, corporate pension plans continue to move on a path of transferring assets from equity to fixed income investments. Public Funds continue to move money into private equity and international equity. The median allocation to private equity for Public Funds has gone from 1.6 per cent last December to 5 per cent currently. Foundations & Endowment plans reduced their allocation to fixed income from 16 per cent to 11 percent, while continuing to allocate to hedge funds and private equity.

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