Assets of the 1,000 largest U.S. employee benefit funds topped the $3 trillion mark for the first time ever, thanks to dazzling returns in the domestic equity and fixed-income markets. Total assets of the top 1,000 funds grew 15% to $3.128 trillion in the year ended Sept. 30, according to results of Pensions & Investments' 18th annual survey of the country's largest employee benefit funds. Full results will be published Monday in P&I.
Despite the healthy increases on an absolute basis, the funds actually suffered negative growth on a market-adjusted basis. Assets of the top 1,000 employee benefit funds were 3.6% less than they should have been, had their investment returns matched the indexes in proportion to each asset class in which they invest. One partial explanation: benefit payments continue to outstrip contributions.
On a market-adjusted basis, defined benefit assets of the top 1,000 plans should have grown 4.9% more than they did; defined contribution assets should have grown 4.2% more.
Other significant findings in the 1995 P&I survey include:
- Contributions to defined benefit plans were up 31% among the top 200 plans, while benefit payments were up 16%.
- Benefit payments still exceeded contributions.
- The allocation to company stock in the top 200 defined contribution plans dropped noticeably to 18.2% in the year ended Sept. 30 from more than 25% a year earlier. At the same time, the allocation to non-company stock increased to 32% from 23.6% a year ago.
- The top 200 defined contribution plans reduced their allocations to guaranteed investment contracts and stable value funds to 14.7% as of Sept. 30 from 21% the previous year. Defined contribution plans in the top 1,000 reduced those allocations to 16.6% in 1995 from 24.8% a year ago.
- The commitment to non-investment-grade bonds by the top 200 pension plans nearly doubled, to $4.87 billion from a year ago.
The S&P 500 outperformed the median commingled equity fund for the quarter and year ended Dec. 31, the PIPER Commingled Funds Report shows. But median funds in two categories of commingled fixed-income funds outperformed their benchmark.
Of the 273 commingled equity funds in universe, the median fund returned 4.7% for the quarter and 33.5% for the year. The S&P 500 returned 6% for the quarter and 37.6% for the year.
Large-cap value funds showed the best performance for the quarter, with a median return of 5.3%. For the year, the median large-cap value fund returned 33.4%, about the same as the median fund in the overall universe.
On the bond side, the median broad market fixed-income fund return was 4.5% for the quarter; the median long duration fixed-income fund return 6%; the Salomon Broad index returned 4.3%.
For the year ended Dec. 31, the median commingled broad market fixed-income fund returned 18.8%; the median long duration fixed-income fund returned 27.4%; and the Salomon Broad, 18.6%.
PDFM is challenging Mercury Asset Management's long-standing reign as the leading manager of U.K. separate account pension assets. As of June 30, Mercury managed $62.8 billion in U.K. segregated pension assets, with PDFM in hot pursuit at $61.3 billion, according to William M. Mercer's 1996 European Pension Fund Managers Guide.
The newly published guide also calls 1995 ``somewhat of a watershed'' year in growth in specialist management business in Europe. Specialist accounts for U.S., European, Japanese and emerging markets equities and tactical asset allocation each grew between 40% and 50% during the period, the survey said.
Harris Trust & Savings Bank will convert its eight institutional trust commingled funds and 12 personal trust common funds into mutual funds, in a move to offer a broader investment product line to become competitive in the 401(k) marketplace.
The conversion will involve setting up new mutual funds or merging the pooled funds with some of the six existing Harris Insight mutual funds. Following the conversion, Harris will have about $10 billion in 17 mutual funds.
Also, Harris is establishing agreements to offer mutual funds of some other companies in addition to its own to 401(k) plans. Donald G.M. Coxe, president and CIO of Harris Investment Management, a Harris unit, declined to name the other companies. With the changes, Harris, long mostly a fixed-income manager, now will have about the same amount of assets in equities and fixed income, Mr. Coxe added.
SEARCHES & HIRINGS
Ending the last of its internal asset management, the University of Illinois, Urbana, selected Hotchkis and Wiley to manage a short-term investment portfolio, said Douglas E. Beckmann, director-cash management and investments. The hiring is contingent on approval of the board of trustees. The board would assign Hotchkis and Wiley $50 million to $70 million from the university's approximately $375 million in operating cash. Assets would come from the internal portfolio, which the university has been phasing out over a number of years.
Ennis Knupp assisted in the search