Northern Trust says that most US institutional investment plan sponsors endured a dismal year in 2008, with the median plan losing a quarter of its value in the 12-month period ending 31 December 2008, according to data in the Northern Trust Universe. The Northern Trust Universe represents the performance results of more than 300 large institutional investment plans, with a combined asset value of approximately $600 billion, which subscribe to Northern Trust performance measurement services.
The median plan in the performance measurement database posted a 25% loss for 2008, including a 13.1% loss in the fourth quarter. Foundations & Endowments performed marginally better than the Public Funds or Corporate ERISA pension segments for the year, but lagged in the final quarter.
“These results confirm that institutional investors were not spared from the impact of the global financial crisis in 2008, despite their efforts to diversify beta sources in recent years,” says Paul d’Ouville, global director of Investment Risk & Analytical Services at Northern Trust. “While US equities were the primary source of negative results, the markets provided few safe havens, and last year’s extraordinary environment could prompt a reassessment of risk models and investment strategies by large institutional investors.”
Northern Trust performance data show that investment managers hired by plan sponsors were in line with their benchmarks, and that allocations to private equity and fixed income contributed to plan returns. Foundations & Endowments, for example, derived a relative advantage through larger allocations to private equity, which returned (-5.7)% in 2008, compared to the U.S. equity program return of (-37.5)% and the international equity program return of (-43.2)% for the year. The median F&E plan had an 11% allocation to private equity, while the median Corporate ERISA plan allocated less than 1% to the asset class.
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