U.K. and Japanese pension funds outperformed plans in the United States last year, according to year-end tallies by leading consultants.
Japanese plan sponsors, in fact, ended the year with their highest returns in 10 years, said John Stannard, managing director in London for Frank Russell Co.
The median Japanese pension fund last year saw returns shoot up to 18.3% vs. 1998 when the median fund posted a loss of 3.2%.
But pension funds in the United Kingdom led the globe, posting an average return of 20.6% in 1999, up from 14.4% a year earlier, according to The WM Co., Edinburgh.
Flat U.S. returns
U.S. plan sponsors, however, saw flat returns, albeit at a healthy level. The median U.S. fund saw a return of 14.5% last year, down a shade from the 1998 level of 14.7%, according to preliminary data from Callan Associates Inc., San Francisco.
SubPlan sponsors around the world once again benefited from strong stock markets. "Equities drive returns, no surprise there," said Mr. Stannard. "Most markets were strong in the fourth quarter."
Canadian plans in 1999 returned 11.8% vs. 8.7% a year earlier.
Swiss plans, which are heavily weighted to bonds, were down, gaining 9.3% last year vs. 10.4% a year earlier.
Australian plans also were down. Australian corporate defined benefit plans had returns of 11.1%, while Australian industry funds returned 10.4%, down from 12.3% and 10.9%, respectively, in 1998, according to John Nolan Associates Pty. Ltd. in Sydney. Stock markets were strong globally in 1999, with the United States lagging some foreign markets.
Consultants based their returns on plans' asset weightings in the third quarter and returns in the fourth.
The Morgan Stanley Capital International Europe Australasia Far East index was up almost 27% for the year, surging almost 17% in the final quarter. The Standard & Poor's 500, was up 21% last year, with a fourth-quarter sprint of 16.1%.
MSCI's Emerging Markets Free index, meanwhile, was up 66.4% in 1999. Emerging markets shrugged off Y2K fears in the last three months of the year, posting a gain of 25.4%.
The year's returns for U.K. funds were the second highest of the decade, which saw an average annual return of almost 13%, according to WM. In the '80s, pension funds averaged a return of 20% per year. Inflation, however, has been much lower in the '90s than the '80s, 3% vs. 7%. So, the real return of U.K. pension funds has increased to 10% a year in the past 20 years, according to WM data.
U.K. equities returned 24.2% for the average fund, while overseas equities returned 36.4%.
Japanese funds shot up because of the growth bias of money managers running portfolios for pension funds there, said Mr. Stannard.
The average Japanese pension fund has close to a 40% weighting in equities, with 25% invested domestically and the rest in non-Japanese stocks, he said.
The runup in returns is also forcing some Japanese plan sponsors to take a look at their asset allocation policies, said Russell's Masanori Tsumo, managing director in Tokyo. Plan sponsors also are looking for good currency managers in the wake of last year's rapid appreciation of the yen against the dollar, Mr. Tsumo added.
As of Sept. 30, U.S. pension funds had an average asset weighting of 47.6% to domestic equities; 33.2% to fixed income; 11.9% to international equities; 1% to international fixed income; 1.6% to cash; 1.9% to real estate; 0.8% to balanced funds; and 2% to other investments, according to Callan.
TSE up 31.7%
Canadian pension funds' returns were driven by the strong performance of the Toronto Stock Exchange 300 index, which was up 31.7%by the end of last year.
Canadian funds' returns could have been higher if not for "exceptional" market behavior of the TSE, said Jim Franks, director of consulting with Frank Russell Ltd. in Toronto.
Two telecom giants, Nortel Networks Corp., which was up 220% and BCE Inc., up almost 130% drove the index, said Mr. Franks. Subtract those two companies, and the TSE 300's return falls to 9.2%.
And most money managers apparently missed some of those gains. Many underweighted those two companies because of their valuations and the need to diversify, Mr. Franks said.
Swiss plans saw poor performance during the first three quarters of last year, said Mr. Stannard. But foreign markets' strong performance in the fourth quarter helped boost returns.
Swiss pension funds were heavily weighted to bonds, with the median plan showing a 35.4% weighting in Swiss bonds and 12.1% in foreign bonds denominated in Swiss francs. Swiss equities and foreign equities made up 24.1% and 16.4% of a pension fund's portfolio, respectively, according to Russell data.
Australian industry funds had a 34% weighting to domestic equities while corporate funds had a weighting of 38%. Consultants at John Nolan estimated a 16.1% return on equities through the end of last year.
Japanese plans, like their Canadian and Swiss counterparts, were cash heavy last year, according to Russell data. Japanese funds had a median cash weighting of 9.4%, while Canadian and Swiss plans had a weighting of 6.8% and 4.5%, respectively, to cash.