Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. P&I 1,000 largest retirement plans
February 10, 2020 12:00 AM

Lingering shadow of 2018’s debacle hurts fund growth

Tepid asset boost of 2.9% for top plans blamed on fourth-quarter market fall

Christine Williamson
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Jeffrey MacLean

    Jeffrey MacLean said equity risk worries investors, but some also regret not participating in 2019’s run-up.

    Assets of the 1,000 largest U.S. retirement funds increased to $11.32 trillion in the year ended Sept. 30 at a slower pace — 2.9% — than in 2018 when assets grew by 6.4%, due to the lingering effect of poor market performance in the fourth quarter of 2018.

    Over the five years ended Sept. 30, asset growth of the combined defined benefit and defined contribution plans of the 1,000 largest retirement funds was 25%, lagging the 31.8% increase over the same time frame ended Sept. 30, 2018, results of Pensions & Investments' annual survey showed.

    Defined benefit plans within the top 1,000 funds were up 2.2% for the year to $7.06 trillion, or 62%, of total universe assets. Defined contribution plan assets were up 4% to $4.26 trillion as of Sept. 30.

    Among the 200 largest retirement funds in P&I's universe, growth of DC plan assets continued to outpace that of DB plans in both the one- and five-year periods ended Sept. 30.

    Assets managed in DB plans by the top 200 funds totaled $5.59 trillion, up 2.5% for the year and up 17.7% for the five years ended Sept. 30.

    In contrast, aggregate assets in the DC plans of top 200 retirement funds increased by 4.6% to $2.58 trillion in the year ended Sept. 30 and by 44.4% over the prior five years.

    The vast majority — 166 — of the 200 largest retirement funds in P&I's universe experienced positive asset growth in the year ended Sept. 30, but only 22 saw assets rise at least 10% in the year.

    The pace of growth slowed for both DB and DC plans in P&I's top 200 universe compared to prior years.

    As of Sept. 30, 2018, assets of the top 200 DB plans rose 4.4% compared to the previous year and were up 22.4% over the previous five years. Assets managed in top 200 DC plans increased 10.7% in the year ended Sept. 30, 2018, and 53.5% over the five-year period.

    Lower aggregate growth rates among the largest U.S. retirement funds were largely performance-related, thanks to sharp market declines in fourth quarter 2018, when the S&P 500 index fell 13.5%, one of the worst declines since the financial crisis, sources said.


    $764.9 billion loss

    P&I estimated that the top 1,000 U.S. retirement plans experienced a collective performance-related loss of $764.9 billion in their DB and DC plans in the fourth quarter of 2018, which sources said affected asset levels overall in the year ended Sept. 30.

    P&I's choice of Sept. 30 for one-year data collection for retirement fund assets provides a good example of period-dependent performance and its impact on asset growth, said Steven J. Foresti, chief investment officer at Wilshire Consulting Inc., Santa Monica, Calif.

    "In the fourth quarter 2018, the big culprit was the market. There were large sell-offs in October and December, including on Christmas Eve. It was brutal," Mr. Foresti said.

    He stressed that "one bad quarter among four made a massive difference in the performance of retirement funds over this period. The losses dug a big hole for many funds. Even with great performance in 2019, plan sponsors still were working off the losses as of Sept. 30," Mr. Foresti said.

    Aside from fixed income, returns of major market indexes in the year ended Sept. 30 were lower than those produced the prior year.

    The Russell 3000 index rose 2.92% for the year ended Sept. 30, significantly lower than the 17.57% return of the index the prior year. Over the same period, the S&P 500 index returned 4.25% compared to 17.9% the prior year. The MSCI ACWI IMI ex-U.S. equity index was down 1.84% compared to a 1.79% increase a year earlier.

    The Bloomberg Barclays U.S. Aggregate Bond index was up 10.3% for the 12 months ended Sept. 30 and was down 1.2% the prior year.


    Largest plans

    The ranking of the three largest retirement funds remained unchanged based on combined DB and DC plan assets as of Sept. 30:

    Federal Retirement Thrift Investment Board, Washington, remained in the top position with DC plan asset growth of 3.8% to $601 billion.

    California Public Employees' Retirement System, Sacramento, held on to second place with asset growth of 2% to $384.4 billion, 99.5% of which is in the system's DB plan.

    California State Teachers' Retirement System, West Sacramento, experienced growth of 5.7% to $243.3 billion, 99.5% of which is in the system's DB plan.

    The three largest corporate retirement funds based on total DB and DC plan assets remained the same as in the prior year, but Chicago-based The Boeing Co. displaced AT&T Inc., Dallas, to take the No. 1 spot:


    • Boeing's assets rose 4.7% to $129.5 billion, with 51% in the firm's DC plans in the year ended Sept. 30.
    • AT&T's retirement plan assets were up 1.2% to $125.6 billion, with 54% in DC plans, securing the second-place ranking.
    • International Business Machines Corp., Armonk, N.Y., accrued asset growth of 2.4% to $105.7 billion to remain the third-largest corporation plan, with 51% of assets in its DC plans.

    Over the one-year period ended Sept. 30, the aggregate asset mix of the DB plans in the top 200 list did not change dramatically, except U.S. stock was down 2.4 percentage points to 22.5%.

    Defined contribution sponsors among the top 200 retirement plans saw a more dramatic decline of 3.4 percentage points in the aggregate allocation to U.S. equity to 39.6% in the as well as an increase of 2.2 percentage points to 23.5% for target-date funds.

    A deeper dive into P&I's data based on actual aggregate-dollar allocations by the defined benefit plans in the top 200 over the one- and five-year periods unveiled movement out of equities into fixed income and continued movement into passive strategies from active approaches.

    DB plans of the 200 largest retirement funds reduced their allocation to actively managed U.S. equity by 19.7% to $325.1 billion in the year ended Sept. 30, a drop of 22.8% over the five-year period. Investment in passively managed U.S. equity strategies was up 2.7% in the year to $621.7 billion and increased 7.9% over five years.

    "There is general dissatisfaction with equity as an asset class as investors continue to worry about equity risk in this late-market cycle. It's not a new trend," said Jeffrey MacLean, CEO of investment consultant Verus Advisory Inc. Mr. MacLean is based in the firm's El Segundo, Calif. office.

    However, he added that "there is a fair amount of regret from plan sponsors who missed out on strong returns of the S&P 500 in 2019," noting that the S&P 500 returned about 31% in the calendar year.

    During the year ended Sept. 30, several large retirement funds moved significant capital to passive equity strategies from active approaches.

    The New Jersey Division of Investment, Trenton, which manages the $78.5 billion New Jersey Pension Fund, eliminated its $24.1 billion actively managed U.S. equity portfolio and moved $22.8 billion to passively managed domestic stocks.

    Fund officials also decreased the fund's actively managed international equity allocation by 25.8% to $2.6 billion and increased the allocation to passive international equity by 9% to $11.4 billion.


    Performance-related

    The rationale for the shift was performance-related, according to the 2019 annual report of the New Jersey State Investment Council, which oversees management of the pension fund.

    Deepak D. Raj, chairman of the council, said in the report that the 6.3% performance in the fiscal year ended June 30 trailed the 7.1% return of the fund's benchmark primarily because the fund's domestic equity portfolio underperformed the S&P 1500 benchmark.

    "In the current market, it is difficult to generate market-beating returns on large pools of capital. The division recognized this and moved decisively to a passive ... portfolio for domestic equities. The move toward a passive portfolio was essentially completed in September 2019. Not only does this make it less likely that we will miss market opportunities, it also frees up division resources to be applied to other asset classes," Mr. Raj said.

    By comparison, assets in actively managed U.S. bonds by top 200 DB plans increased 6.2% to $802.9 billion in the year ended Sept. 30, up 26.3% from five years ago.

    Aggregate assets invested in passively managed U.S. bonds by large U.S. DB plans still are low compared to actively managed bonds. As of Sept. 30, the top 200 DB plans had an aggregate $138 billion invested using passive strategies, up 5.6% compared to the prior year but down 0.7% from five years ago.

    Wilshire's Mr. Foresti said he suspects corporations moving more assets into liability-driven investments were the source of much of the strong growth in fixed income by defined benefit plans.

    Assets identified as being in LDI strategies were up 16.7% to $109.8 billion for the year ended Sept. 30 and up 19.1% over five years.


    Factor-based growth

    Factor-based equity strategies also saw strong year-over-year growth of 159.4% for a total of $99.6 billion, Mr. Foresti noted. P&I did not track factor-based equity strategies, also called smart beta, five years ago.

    "Investment in smart-beta strategies really is part of the move by asset owners to passive management from traditional actively managed approaches. Many smart-beta strategies essentially are passively managed and offer similar lower fees and tracking error," Mr. Foresti said.

    CalPERS accounted for the vast majority of growth in factor-based equity strategies, with a 280.2% increase to $72.4 billion.

    Another area of growth within the universe of the 200 largest U.S. retirement funds was internal management, with assets rising 9.4% to a total of $1.42 trillion in the year ended Sept. 30, an increase of 40.2% over five years.

    CalPERS retained the first-place position with $286.4 billion of internally managed DB plan assets as of Sept. 30, up 17.1% from the prior year.

    CalSTRS moved to second with internally managed DB plan assets up 10.4% to $114.7 billion, replacing the $215.4 billion New York State Common Retirement Fund, Albany, which dropped to third place with a 1% decrease to $110.9 billion.

    Related Articles
    CalPERS walking its own path on asset allocation
    New crop of CIOs unlikely to fail in next market flop
    Target-date funds remain voracious
    Growth reflects confidence in return outlook
    Recommended for You
    2022 sponsors cover for video.jpg
    P&I's annual survey of largest retirement plans underway
    bienvenue_750px_i.jpg
    Record year for deal value vaults venture capital, private equity
    Data1550px_i.jpg
    How P&I compiled the data
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    The Future of Infrastructure: Building a Better Tomorrow
    Outlook 2023: Opportunity in a volatile world
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing