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Institutional asset owners record modest Q1 gain, says Northern Trust

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The first quarter marked the second consecutive gain for institutional asset owners after two consecutive losses beginning in the second quarter of 2015, with plan sponsors gaining approximately 0.7 per cent at the median. 

Since 1998, the average first quarter median return has been 1.1 per cent.

The Northern Trust Universe tracks the performance of about 300 large US institutional investment plans, with a combined asset value of approximately $899 billion that subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.

Corporate ERISA plans had the best performance in the quarter with a return of 2.2 percent at the median, while Public Funds were second returning 1 percent. Foundation & Endowments finished third with a return of 0.1 per cent at the median. Public Funds and Foundations & Endowments recorded reduced gains compared to the previous quarter.

“Having the smallest exposure to equities was a key factor behind the relative outperformance of corporate ERISA plans,” says Bill Frieske, senior investment performance consultant, Northern Trust Investment Risk & Analytical Services. “Another factor helping corporate ERISA plans was the longer duration of their fixed income programs.”

“Corporate pension plans generally have been lengthening the duration of their fixed income programs, while at the same time increasing their allocation relative to Public Funds and Foundations & Endowments. The first quarter saw interest rates decline pushing up returns for long duration bonds,” Frieske adds.

In the fourth quarter of 2015, equities performed well while bonds lagged. The opposite was true in the first quarter. Bonds generally outperformed stocks in the first quarter as interest rates edged downward. The median total fixed income segment was up 3 per cent and the US fixed income segment was up 2.8 per cent. The median total equity program and US equity program were both essentially flat. However, there was wide variance in equity segment returns with the median emerging market equity manager up 5.5 per cent, while the median non-US developed equity manager was down 1.5 per cent.

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