Corporate pension funds in the seven largest retirement markets around the globe bore the brunt of a difficult fourth quarter for equity markets.
Pensions & Investments' analysis of corporate pension funds in Australia, Canada, Japan, Switzerland, the Netherlands, the U.K. and the U.S. showed a range of estimated returns, from zero for Australia to -6.25% for the U.S.
Sources in each market said the fourth quarter of 2018 had an outsized impact on returns. The MSCI All Country World stock index lost 12.8% in the three months ended Dec. 31, with a calendar year loss of 9.4%. That compares with a 2017 gain of 24%.
Suffering most were U.S. corporate pension funds, with the estimated loss of 6.25%, according to Wilshire Consulting.
"Equities had a very difficult year, mostly in the fourth quarter," said Steven J. Foresti, chief investment officer at Wilshire Consulting in Santa Monica, Calif. "Even though many of these U.S. corporate plans have derisking and others are on a glidepath … the biggest impact is still coming from what equity markets are doing."
Mr. Foresti said 50% or more of equity allocations for U.S. funds are invested in the U.S. stock market.
The Russell 3000 index lost 14.3% in the fourth quarter, bringing overall 2018 returns to -5.2%. That compares to a 21.1% gain in 2017, when U.S. corporate pension funds returned 13% — which put them at the top of the table that year.
The return of volatility at the end of the year came after a 2017 that "was historically one of the most tranquil, calm, low-risk, low-volatility markets we've almost ever experienced," Mr. Foresti said. "It was no surprise that 2018 wouldn't repeat that calm story. That's not to say (2018) was an unusually volatile period — (it was) more close to normal — but it really felt like a wake-up or shock back to risk" simply because of a calm previous year.
"It's not that investors got complacent, but the further you go from being tested by markets and volatility, the less you appreciate what your true aversion to volatility really is, and understand the stress it puts on decision-making," he said.
While markets moved plenty, from a funding perspective there was no change just by considering year-end figures, Mr. Foresti said. U.S. corporate pension funds ended 2018 at just less than 85% funded — where they started the year.
But they did move during 2018, with funding levels almost hitting 92% midyear. "At the end of the year, with the large bear market territory sell-off in the fourth quarter, we saw essentially all of those gains given back," Mr. Foresti said.