Equity Performance Leads to a Solid Year for Institutional Plan Sponsors

Institutional plan sponsors saw the fifth consecutive year of positive returns in 2013, gaining almost 14 percent at the median year-over-year, according to data provided by the Northern Trust Universe.

The Northern Trust Universe tracks the performance of about 300 large U.S. institutional investment plans, with a combined asset value of approximately $899 billion, which subscribe to Northern Trust performance measurement services. Institutional plans benefited from strong U.S. equity returns in general, and to a lesser extent, returns from developed European equities. Public Funds performed best among all plan types for the 12 months ended December 31, 2013, with a return of 16.1 percent at the median. Foundations & Endowments followed with a return of 15.2 percent year-to-date and Corporate ERISA plans were third with a return of 12.6 percent.

“For the fourth quarter as well as the one-year period, plan sponsors have benefited from keeping it simple. Publicly traded equities have returned almost twice that of alternative investments, such as private equity and hedge funds, in the fourth quarter,” said Bill Frieske, senior performance consultant, Northern Trust Investment Risk and Analytical Services. “Some good earnings helped push up stocks but the principal driver seemed to be the Federal Reserve’s commitment to easy money for the foreseeable future.”

In terms of asset allocation per segment:

• Public Funds were heavily weighted towards domestic equity (33 percent) and international equity (22.8 percent)
• Foundations & Endowments were heavily weighted towards international equity (27.8 percent) and private equity (18.7 percent)
• Corporate ERISA plans were heavily weighted towards domestic fixed income (36.2 percent) and domestic equity (30 percent)

Overall, the median domestic equity investment program in the Northern Trust Universe grew 9.8 percent in the fourth quarter and 34.3 percent for the 12 months ended December 31, 2013, which made it the best returning asset class for both periods. The median international equity program was second-best in terms of performance, with a return of 5.1 percent in the fourth quarter and 17.5 percent year-to-date. Private equity, hedge funds, and real estate returned about 3 percent for the quarter, while returns for fixed income in the quarter were less than 1 percent.

Spurred by robust equity market performance, the Public Funds segment gained 5.1 percent at the median in the fourth quarter, while Foundations & Endowments gained 4.7 percent and Corporate ERISA plans gained 4.6 percent, according to Northern Trust Universe data.

Over the last 15 years the fourth quarter has been the best returning quarter, on average. Since 1998 fourth quarters have averaged a 4 percent return, which is better than the other three quarters combined. The fourth quarter of 2013 was consistent with this trend although the first and third quarters were much stronger than historically observed.

Returns by segment in the fourth quarter, one-, three- and five-year periods as of December 31, 2013 were:

About Northern Trust

Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 18 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of December 31, 2013, Northern Trust had assets under custody of US$5.6 trillion, and assets under investment management of US$884.5 billion. For more than 120 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com or follow us on Twitter @NorthernTrust.