Northern Trust universe up 0.7% in quarter; all plan types negative for the year

Institutional asset owners in the Northern Trust universe returned a median 0.7% in the first quarter of 2016, marking the second consecutive quarter of investment gains but down from a median 2% in the previous quarter, said data released Thursday.

Among the three plan types that Northern Trust monitors, corporate defined benefit plans posted the highest quarterly return at a median 2.2%, followed by public DB plans at 1% and foundations and endowments at 0.1%. In the fourth quarter of 2015, public DB plans were the top-performing plan type with a median return of 2.7%.

“Having the smallest exposure to equities was a key factor behind the relative outperformance of corporate ERISA plans,” said Bill Frieske, vice president and senior investment performance consultant for Northern Trust’s investment risk and analytical services group, in a news release on the results.

Corporate DB plans’ median equity allocation was 44.3% in the first quarter vs. 56.2% for public DB plans, and 42.5% for endowments and foundations.

“Another factor helping corporate ERISA plans was the longer duration of their fixed-income programs,” Mr. Frieske added. “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 and endowments. The first quarter saw interest rates decline pushing up returns for long duration bonds.”

Corporate plans’ median allocation to long-duration fixed-income was 27% in the first quarter vs. less than 5% and 2% for public funds and endowments and foundations, respectively.

For the three months ended March 31, plans in the Northern Trust universe posted a median overall fixed-income return of 3% and a median U.S. fixed-income return of 2.8%. Equity segment returns varied with emerging markets up 5.5% and international developed equity down 1.5%. However, median overall equity and U.S. equity returns were relatively flat (-0.04% and 0.3%, respectively).

Public DB plans were the top performer for the 12 months ended March 31, with a median return of -1%, followed by corporate DB plans at -1.1%, and foundations and endowments at -2.4%.

The Northern Trust universe consists of about 300 large U.S. institutional plans with combined assets of about $899 billion.