Funds' return on investments up sharply in 2010

U.S. corporate defined benefit funds' mean return on investments was 18% in 2010, while the mean return of U.S. public defined benefit funds and endowments and foundations was 14%, according to a Greenwich Associates study released Tuesday.

The performance represents a strong recovery from 2009, when the mean return was -20% among corporate pension fund investments, -17% among public pension funds and -19% among endowments and foundations, the study said.

“Funds that have consistently rebalanced probably regained about half the portfolio asset valuation lost during 2008-2009,” Dev Clifford, Greenwich Associates consultant, said in the study, “U.S. Investment Management: Solid Investment Returns Do Little to Close U.S. Pension Funding Gaps.”

“Despite this strong performance, funding levels for corporate pension funds improved only modestly while the solvency position of public pensions actually deteriorated,” the study said.

The study was based on interviews with officials at 529 corporate funds, 209 public funds and 232 endowments and foundations, all in the U.S.

Among the study's other findings:

• Corporate plan sponsors expect the actual annual return on pension assets to average 6.7% over the next five years. This expectation reflects a decline in actual expected annual return in U.S. equities to 7.2% in 2010 from 8% in 2009; in hedge funds to 7.8% from 8.1%; and in fixed income to 4.9% from 5.5%. But corporate sponsors expect returns in private equity to increase to 9.9% from 9.5% and real estate to rise to 7.6% from 7.1% .

Corporate sponsors on average lowered their actual assumed rate of return to 7.8% from 8%, the new figures representing a 1.1 percentage-point gap from the five-year actual return expectation.

• Public plan sponsors expect the actual annual return on pension fund assets to average 7% over the next five years. This expectation reflects a decline in actual expected return in U.S. equities to 7.4% in 2010 from 8.9% in 2009 and in fixed income to 4.8% from 5.7%. But public plan sponsors expect actual annual increased returns over the next five years in hedge funds of 7.7%, from 7.1%; private equity, to 10.3% from 9.9%; and real estate, to 7.6% from 7.4%.

Public plan sponsors kept their actuarial assumed rate of return at 7.9%, the same as in 2009, representing a 0.9 percentage point gap with the five-year actual return expectation.