Northern Trust Universe Data: Institutional Plan Sponsors Extend Investment Gains in Third Quarter

Institutional plan sponsors recorded an eighth consecutive quarter of investment gains in the three months ending September 30, 2017, returning 3.3 percent at the median, according to Northern Trust Universe data released today. 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.

“Since the market lows associated with the global financial crisis, in the first-quarter of 2009, the average median quarterly return for asset owners in the Northern Trust Universe has been nearly 3 percent – well above the 20-year average,” said Mark Bovier, regional head of Investment Risk and Analytical Services at Northern Trust. “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 percent annually since the end of the financial crisis.”

The median total equity program in the Universe was up 5.0 percent in the third-quarter. Non-U.S. small-cap equities, up 8.3 percent, and emerging market equities, up 6.4 percent, were the two best returning sectors of the market in the quarter. Private equity programs returned 2.5 percent in the third quarter, while fixed income and real estate were up less than 2 percent in the period.

Public Funds gained 3.6 percent at the median in the second quarter, slightly ahead of Corporate ERISA plans, at 3.2 percent, and Foundations & Endowments, at 3.1 percent.

“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,” said Bill Frieske, senior investment performance consultant, Investment Risk and Analytical Services. “Public Funds had a median allocation of almost 17 percent to non-U.S. equities while Corporate ERISA plans and Foundations & Endowments both had allocations closer to 12 percent.”

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. 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.

Longer-term returns as of September 30, 2017 are as follows:

1 Yr                  3 Yr                  5 Yr

ERISA                                                  10.5%               6.9%                 8.5%

Public Funds                                         12.7%               7.1%                 8.8%

Foundations & Endowments                  11.8%               6.1%                 8.3%