Despite a slower growth rate, the nation's 200 largest retirement plans climbed past the $4 trillion mark, while the 1,000 largest surpassed $5 trillion.
Assets of the top 200 funds grew 12% during the 12 months ended Sept. 30, down from 14% the previous year, according to data collected for Pensions & Investments' annual survey. The top 1,000 plans grew 11%, vs. 13% a year earlier.
When adjusted for market returns, however, the total top 200 assets just held steady, showing a drop of 0.6%. The defined benefit plans among the top 200 also held steady, showing only a minuscule drop of 0.01% after taking the markets into account; the top 200 defined contribution plans dropped 3%.
The story among the nation's 1,000 largest funds was similar. When adjusted for the markets, assets of the top 1,000 dropped 1%. Defined benefit plans dropped 2%, and defined contribution, also 2%.
Market-adjusted numbers were calculated using benchmark returns for the 12 months ended Sept. 30: the Russell 3000 index for domestic equities; Salomon Smith Barney Broad Investment Grade index, domestic bonds; Morgan Stanley Capital International Europe Australasia Far East index, international equities; Salomon Smith Barney World Global bond, non-U.S., index, international bonds; NCREIF Classic Property index, equity real estate; the 30-year mortgage rate for mortgages; and the 90-day Treasury bill rate for all other categories.
"Difficult capital markets would have played a role," said Joseph Nankof, managing director at BARRA RogersCasey, Darien, Conn., of the reduced growth. He added the weakening of the equities market was another factor.
Payouts and contributions
The slower rate "could be attributable to payouts and contributions," said Brian Hersey, investment director at Watson Wyatt Investment Consulting Inc., Chicago. Among the top 200, employer contributions to the defined benefit plans were only 9% higher than the year before and payouts were 11% higher.
Mr. Nankof echoed Mr. Hersey's theory. He also said the market-adjusted numbers didn't concern him. "Over time, on a market-adjusted basis, you'd hope for a positive or neutral cash flow."
The year ended Sept. 30 had very encouraging numbers for many top funds. Among the top 100 as of Sept. 30, 1999, only two funds lost assets overall.
Procter & Gamble Co., which was ranked 55th in 1999, dropped to 80th as of Sept. 30, 2000, after dropping $5.7 billion, or 30% of total assets. The losses are likely the result of the defined contribution plan's 94.3% exposure to sponsoring company stock, said Mark Woods, treasury analyst at Procter & Gamble. P&G stock dropped 29% in the one-year period ended Sept. 30.
Raytheon Co., Lexington, Mass., dropped a few slots after its total assets slid 1%. Norman Pao, director, pensions and investments, said the drop could be attributable to the sale of the company's Raytheon Engineers and Contractors division to Morrison Knudsen Corp. in late 1999.
The aggregate asset mix for the top 200 defined benefit plans remained very close to that of a year earlier. The biggest change was in private equity, which saw its exposure go up 1.1 percentage points to 3.9%. Domestic and international fixed income were trimmed 0.6 and 0.4 percentage points respectively to 26.5% and 1.5%. Domestic equity exposure grew 0.2 percentage points to 47.4%, while international equities slid by 0.1 percentage points to 14.1%.
Venture capital and private equity figured heavily in a 65% increase in the dollars reported invested by the pension funds in alternatives. Among the top 200's defined benefit plans, venture capital exposure grew more than 90%, while private equity climbed 63%. The P&I findings match those of Mr. Hersey. He said many of Watson Wyatt's larger clients are becoming more involved with alternative asset classes, especially private equity and hedge funds. Messrs. Hersey and Nankof mentioned the positive investment returns the asset classes have generated. Mr Nankof said his firm recommends private equity as a diversifier and it takes a cautious approach to venture capital.
Although a few changed spots, the members of the top 10 remained the same from a year earlier. For the 16th year in a row, the California Public Employees' Retirement System maintained its dominance as the nation's top fund in total assets. The Sacramento-based fund leads the second-ranked New York State Common Retirement Fund by $46 billion. The funds ranked third through seventh remained the same as a year earlier. General Electric Co. moved up two spots to rank eighth, and could move further for the next survey after its merger with Honeywell Inc. The Teacher Retirement System of Texas and New Jersey Division of Investments were bumped to Nos. 9 and 10 from Nos. 8 and 9, respectively.
Other findings of the survey include:
* Assets in hybrid and cash balance plans went up 152% and 353%, respectively. However, not all companies provided full breakdowns of hybrid plan assets for this survey or the previous one. Mr. Nankof said 10% to 20% of BARRA's clients have considered or instituted cash balance plans
* Continuing a trend from the previous year, the amount of internally managed assets in the top 200 plans rose during the survey period. Internally managed defined benefit assets increased 10% to $1.1 trillion. Internally managed defined contribution plans also rose 15% to $118.1 billion.
* Sponsoring company stock exposure in corporate defined contribution plans dropped 1.6 percentage points on average to 30.2% this year, while other equities rose 3.4 percentage points.
* Stable-value exposure in corporate and public funds were reduced 3 and 6.5 percentage points on average, respectively, while union plans experienced a 2.8 percentage point increase.
* Union defined benefit plans kept their exposure to private equity, real estate equity, mortgages and other alternative classes low at 6.7% of total assets on average, while their counterparts at corporate and public funds raised exposure to alternative asset classes.
* Private equity experienced an increase of 0.9 percentage points in the aggregate asset mix among top 1000 defined benefit plans to 3.4%. The percentage was only 1.9% the year ended Sept. 30, 1998.