Double-digit performance across most equity markets buoyed 2012's estimated average investment return for pension funds in six major markets, providing some respite from the previous year's pounding.
“Sentiment was relatively negative (particularly during the first half of 2012), but the year turned out to be quite a good year for investors,” said David Carruthers, principal at Mercer in Melbourne, Australia. “Markets actually did pretty well, and even better if you consider the low-interest-rate and low-inflation environment.
“In general, it was hard to find an asset class in which returns were negative for the year. Pretty much every single asset managed a positive return.”
U.S. pension funds returned an estimated 12.4% on average for the year ended Dec. 31, compared with 1.4% the previous year, according to data from BNY Mellon Asset Servicing. Both U.S. equities and non-U.S. equities helped to bolster pension funds during the year, and fixed income and alternatives also generated positive average returns.
While the year brought about investor confidence of a more sustained recovery, it was also marked by choppy waters. Within the BNY Mellon U.S. Master Trust Universe, for example, the median return was 7.1% for the first quarter and -1.5% for the second quarter. The third quarter was up, with a median return of 4.6%, and the fourth quarter flattened with a 1.9% median return. BNY Mellon's data are based on actual returns for the first 11 months combined with estimates for December.
“2012 was a bit of a roller coaster,” said John Houser, vice president and manager of performance and risk analytics for BNY Mellon in Seattle. “What we saw was that intervention by (the U.S. Federal Reserve) and the (European Central Bank) really made a difference in boosting (investor) confidence.”