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Institutional Plan Sponsors see solid gains in Q3, says Northern Trust

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Institutional investment plans maintained positive returns in the third quarter of 2020 as global equity and bond markets posted strong gains, according to the Northern Trust Universe. Plan sponsors saw a median plan return of 5.1 per cent from 1 July to 30 September, 2020.

The Northern Trust Universe tracks the performance of 388 large US institutional investment plans, with a combined asset value of more than USD1.3 trillion, which subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.

Plans in the Foundations and Endowments segment produced a 5.9 per cent median return in the third quarter, outpacing Public Funds, with a median return of 5.0 per cent for the quarter, and Corporate ERISA pension plans, which returned 4.4 per cent at the median.

“US markets continued to show signs of an economic recovery, mostly as a result of loose monetary policy by the Federal Reserve,” says Mark Bovier, regional head of Investment Risk and Analytical Services at Northern Trust. “Equity indices posted strong returns, particularly in August. While bond markets were relatively flat overall for the quarter, high-yield bonds performed well as investors showed a willingness to take on more risk.”

US equity is a core allocation for most plans in the Northern Trust Universe, and the Northern Trust US equity program universe reported a median gain of 8.3 per cent in the third quarter. Another top allocation for most plans, US fixed income, had a median return of 1.4 per cent for the quarter.

Corporate ERISA pensions have the largest allocations to US fixed income, with 38.8 per cent of plan assets allocated to the asset class for the median ERISA plan at the end of the third quarter – a 2 per cent increase from the prior quarter, resulting from investors reallocating assets from the US equity asset class. The US equity median allocation fell to 26.0 per cent of the median ERISA plan assets, down 9 per cent from five years ago. International equity median exposure was 7.5 per cent in the third quarter.

Public Fund plans have the highest allocations to equity, with the median US equity allocation at 30.4 per cent at the end of the third quarter. International equity median exposure came to 15.8 per cent. The median exposure to US fixed income for Public Funds declined to 23.7 per cent from the second quarter. Relative to other alternatives, private equity has the largest median allocation for Public Funds, with a 7.7 per cent median allocation.

Foundation and Endowment plans had a median U.S. equity allocation of 21.9 per cent in the third quarter, down almost 10 per cent from five years prior. International equity median exposure was 8.5 per cent and the median exposure to US fixed income was 9.8 per cent. In the F&E universe, private equity and hedge fund median allocations come in at 16.7 per cent and 10.4 per cent respectively as of quarter end.

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