Research Center Blog
July 31, 2013 at 1:34pm
The estimated average return for large endowments — those having more than around $800 million — is a little less than 12% for fiscal 2013, driven by double-digit returns in listed equities and private equity. For the year ended June 30, global listed equities returned 19.4% as measured by the MSCI World index. For the nine months ended March 31, private equity returned 12.9% as measured by the Cambridge Private Equity index.Generally, private equity returns do not reflect publicly traded equity movements on a quarterly basis. Therefore, we added 70% of the return for the S&P 500 for the second quarter of 2013 to bring the estimated return of private equity to around 15% for the 12 months ended June 30.
On average, listed equities represented 30.8% of an endowment's portfolio at the end of fiscal 2012. With an average allocation of 18.8% at the end of fiscal 2012, private equity was the third largest allocation of large endowments.
Other alternative investments should contribute to the positive performance of endowments in fiscal 2013. Hedge funds, as measured by the HFRI Fund Weighted Composite index, returned 8.25% in the year ended June 30. Hedge funds had the second largest average asset allocation at 19.6% at the end of fiscal 2012.
Real assets, which includes real estate, returned an estimated 8.3%. At the end of fiscal 2012, real assets on average represented 15.4% of a large endowment's portfolio.
The lackluster performance of core U.S. fixed income should not cause too many headaches. U.S. fixed income, as measured by the Barclays Aggregate index, fell 0.69% for the year ended June 30. The average large U.S. endowment had only a 10.2% allocation to fixed income. Cash, which retuned .08% for the year as measured by the Citigroup 3-month Treasury Bill index, had an average allocation of 1.9% at the end of fiscal 2012.
Several endowments and foundations that release quarterly investment performance information have shown strong returns for fiscal year-to-date results through March 31. The University of Iowa Foundation, University of Washington, University of Arkansas Foundation Inc. and Indiana University Foundation returned 12.9%, 12.5%, 12.4%, and 12.1%, respectively, for the three quarters ended March 31.
July 8, 2013 at 1:30pm
The P&I Research Center now has data on money managers that provide institutional investment outsourcing. The information includes total assets, assets under management, clients, level of investment discretion and several other data points. Information is included on managers' worldwide and U.S. businesses. An overview story was published in the July 8 issue of Pensions & Investments.
July 8, 2013 at 11:26am
The number of hires in the second quarter of 2013 jumped 53.6% to 533. The increase was driven by activity in defined contribution plans, which doubled year over year. Several DC plans had significant investment lineup changes, including the Washington State Board for Community & Technical Colleges, AP7, Intersil Corp. and Plexus Corp. Plexus even added a frontier markets fund.
June 27, 2013 at 1:36pm
The Leona M. and Harry B. Helmsley Charitable Trust continues to expand its combined exposure to hedge funds and private equity
The $3.874 billion Leona M. and Harry B. Helmsley Charitable Trust continues to expand its combined exposure to hedge funds and private equity, which totaled $1.598 billion as of March 31, 2012, the most recent data available.
That is an 85% increase from the $864 million in 2011. In 2009, hedge funds and private equity accounted for $159.1 million. The number of hedge fund strategies and private equity funds in the trust's portfolio increased to 40 from 21 in 2011 and only nine in 2009.
The foundation's largest hedge fund investment was Coatue Offshore at $111.9 million. Notable new hedge fund and private equity investments included $108 million each with Daruma Capital Management and Highclere International Investors, $107 million with L.A. Capital and $101 million with Colchester Global Investors.
June 14, 2013 at 5:55pm
The majority of the 100 largest U.S. public pension funds have published their annual reports for their 2012 fiscal years. The updated information — including actuarial assets and liabilities, funded status, funding ratio and assumed rate of return — can be found in the P&I Research Center. The number of active and retired employees, and investment return information, also are available. Information on the remaining plans will be updated as it becomes available.
June 13, 2013 at 3:43pm
Minor gains were seen in employment at money management firms over the past two years. The total number of employees in Pensions & Investments' money management universe increased to 212,584 at the end of 2012 from 196,700 at the end of 2010. Firms without three years of data and Prudential Financial were excluded to facilitate analysis. Employment gains at the largest money managers were responsible for the majority of the increase. Money managers with more than 1,000 employees added 14,661 jobs — up 9.1% to a combined 174,976 employees — in the two-year period. Employers with more than 100 and fewer than 1,000 increased jobs 4.9% in the period for a net gain of 1,222. Total employment at firms in that range stood at 26,137 at the end of 2012.
Smaller employers were not job creators during the past two years. Of all the firms with fewer than 100 employees, there was a net increase of one job. Firms with more than 20 but fewer than 100 employees increased employment by 101 jobs. The smallest employers reduced employment by 100 positions to 1,531 at the end of 2012.
Of the largest money managers, Allianz Global Investors, Pacific Investment Management Co. LLC and Nuveen Investments had the largest percentage increases in employees. AllianceBernstein LP, Legg Mason Inc. and The Inland Group had the largest percentage losses in employment.
May 7, 2013 at 10:43am
P&I's April 29 special report analyzed the largest U.S. corporate defined benefit pension plans. Over the past five years, the aggregate funding ratio declined 2.5 percentage points to 78.7%. However, there were significant differences between individual plan sponsors' funding ratios. Of the plans with Dec. 31 fiscal years and five years of data, Duke Energy and J.P. Morgan Chase & Co. had the largest improvements.
Duke Energy's funding ratio improved 28 percentage points to 96.6% at the end of 2012 from 68.6% at the end of 2008. J.P. Morgan Chase & Co.'s improved 24.9 percentage points to 113.4% at the end of 2012.
The plan sponsors' annual financial reports had many similarities. Both plans had significant declines in asset values in 2008 and subsequently recovered from losses in the following four years. Both companies faced actuarial adjustment headwinds. The biggest positive for funded status came from the level of employer contributions.
Duke Energy put $1.7 billion into its defined benefit pension plans during the past five years. Contributions averaged almost 10% of starting assets each year. Its 2009 contribution of $800 million was the most significant. J.P. Morgan's $2.8 billion contribution in 2009 was a whopping 40.6% of the company's starting U.S. defined benefit assets.
The two funded status winners highlight that while capital market returns and actuarial factors are often beyond the control of plan sponsors, contributions can move the funded status needle significantly.
April 24, 2013 at 12:00pm
In a recent paper titled “Yale's Endowment Returns: Case Study in GIPS Interpretation Difficulties” in The Journal of Alternative Investments, author Ludovic Phalippou analyzed Yale's endowment private equity returns highlighting a flaw in the widely used and GIPS-recommended internal rate-of-return measure. The author's chief criticism pertained to Yale's private equity portfolio's since-inception IRR, which is published yearly in the Yale University Investments Office's annual review of the Yale endowment annual review of investments.
The first “oddity” the author points out is that an investor earning 30.4% over a 38-year period would have 24,000 times the initial investment. In Yale's case, if they the endowmenthad allocated $1 million to private equity in 1973, the value of the investment would be $24 billion. As of June 30, 2012, the Yale endowment stood at $19.3 billion.
A second oddity noted in the paper was that the return since inception “has basically never changed over time” while 10-year performance has changed substantially. Since-inception (“SI-IRR”) return has barely budged to 30% in 2010 from 34.1% in 2000, although the 10-year rate of return dropped to 6.2% in 2010 from 37.9% in 2000.
The last oddity Mr. Phalippou points out is that the numbers published in the report “simply do not add up.” The author calculates that if the returns were equally weighted by year or weighted by capital allocated, the returns since inception would be lower.
The oddities relate to the “implicit re-investment assumption” in IRR calculations. Successful investments early on in an investment program continue to compound at their return rate in future periods though subsequent investments might not have as high of a return.
Ludovic Phalippou constructed both a simple and complex cash flow model to illustrate the point. The complex model looked at a theoretical institution that invested a series of cash flows in private equity and earned an average return as measured by Cambridge Associates. The highly successful investments in the 1990s led to SI-IRRs not budging in the 2000s.
The author's suggestions for better performance reporting of an institution's private equity investments include a breakdown of return between types of private equity (e.g. venture capital vs. buyout), use a modified IRR approach or use a net-present value analysis.
April 16, 2013 at 5:18pm
As of March 31, the Lilly Endowment Inc. held 135,670,804 shares of Eli Lilly & Co. (NYSE: LLY) common stock. Lilly's stock has increased more than 40% over the past year, bolstering the foundation's assets to an estimated $8 billion, up from $5 billion at the end of 2010. Eli Lilly stock, which trades around $57, is still well below the August 2000 all-time high of more than $100.
At the end of 1993, the earliest information available, the foundation held 190,861,368 shares after adjusting for two 2-1 stock splits. The foundation steadily reduced its exposure to Eli Lilly stock until 2008. The foundation has held the same amount of shares for more than four years.
Over the 25 years ended Dec. 31, 2012, the foundation has benefited from market-like returns in Lilly stock, which returned 9.7% annually. That was in line with the annual 9.83% return of the Russell 3000 over the same period. The past 10 years have been more of a struggle; the stock's total return was only 1.18% annually compared to the Russell 3000's annual return of 7.63%.
According to the latest 990-PF, the foundation has $389 million in other investments as of Dec. 31, 2011. The investments were: Vanguard Institutional Total Stock Market Index Fund, $262 million; Vanguard Institutional Developed Market Index Fund, $91 million; and Vanguard Institutional Emerging Markets Stock Index Fund, $18 million. The foundation also had $18 million in “art held for investment.”
April 5, 2013 at 12:41pm
The P&I Research Center now contains the assets and asset allocations of public Canadian pension funds in the P&I/Towers Watson 300 ranking. The pension plans have more than US$600 billion in assets. The average asset allocation for 2011 was 39.7% public equities, 33.8% fixed income, 26.3% alternative investments and 0.2% in cash and other.
Information is now available for 2011, 2010 and 2009. 2012 data will be updated once a more than half of the plan sponsors have released their annual reports.