Many institutional investors will be seeing returns in the low-double-digit range for the 12 months ended June 30, say investment consultants, a welcome reprieve from the 2014-'15 and 2015-'16 fiscal years, when returns were lackluster at best.
The difference in the latest fiscal year: equity markets cooperated. Strong equity markets in fiscal year 2017 helped many institutional investors "achieve a really nice year" with "overall low-double-digit returns," says Tim McCusker, chief investment officer for institutional investment consulting firm NEPC LLC, Boston.
The good news for this year followed fiscal 2016, during which most institutional investors saw flat or even negative investment returns. That was a double blow as it came on top of the 2015 fiscal year's single-digit investment returns.
The Russell 3000 index was up 18.51% while the MSCI All-Country World ex-U.S. index was up 20.45% in the year ended June 30. The MSCI Emerging Markets index did even better with a 23.75% return.
In contrast, in the fiscal year ended June 30, 2016, the Russell 3000 had a 2.14% return while the MSCI All Country World index had a -10.24% return and the MSCI Emerging Markets index returned -12.05%.
Alan Glickstein, a senior retirement consultant at Willis Towers Watson PLC in New York, said markets have done well. "Whether you're looking at a one-year period ending in June 30 of this year, or the calendar year of 2016, or what have you, we're definitely seeing double-digit types of returns on the equities," he said. "So to the extent pension plans are significantly invested in equities, at least based on that short period of experience, they're going to get good news."
A June report by Wilshire Consulting showed that equities were still the largest asset class of state pension plans, 64.8% as of June 30, 2016, the latest numbers available.
But Mr. McCusker said the positive news about equity performance is also tempered with the fact that three year-annualized returns for many public pensions plans are below their assumed rates of return of 7.5% or so, given the low overall results for two of the last three fiscal years.
"It's nice to have the good year now, but the accumulation over three years is not where it needs to be," he said.