Public Funds Outgain Institutional Plans in Q3

Institutional investment plans rose by a median of 4.4% in the third quarter of 2013, according to data in the Northern Trust Universe which tracks around 300 large U.S. institutional investment plans that subscribe to Northern Trust performance measurement services.

Public funds fared the best, rising a median of 4.9%, followed by corporate ERISA plans gaining 4.4% and foundations & endowments increasing 4.3%. Year over year, public plans also lead the way, up 12.9%. Foundations & endowments have seen a 12.1% gain over the last year, while corporate ERISA plans are up 9.7%

“Strong returns from equities in general and from developed markets in Europe specifically gave plan sponsors a nice lift in the third quarter,” says William Frieske, senior performance consultant, Northern Trust Investment Risk & Analytical Services. “It was a nice bounce back from a flat second quarter for many institutional investors. Plan sponsors have benefited by keeping it simple in 2013, with publicly traded equities leading the way and providing almost double the return of alternatives in the most recent quarter.”

Specifically, international equity gains propelled public funds to the lead, as the median investment program in the Northern Trust Universe gained 9.3 percent from these foreign stocks, and public funds allocated the most to this asset class (19.1% compared to 11.8% for corporate ERISA plans and 12% for foundations & endowments).

U.S. equity programs in the Northern Trust Universe also showed strong gains, returning a median of 7%, compared to 6% for the Russell 1000 Index for the third quarter. Year to date, U.S. equity programs are up 22% for the Northern Trust Universe and 20.76% for the Russell 1000.

Compared to other plans, corporate ERISA plans allocate the most to U.S. fixed income, nearly 31.5 percent, while foundations & endowments allocate the most to alternatives—23% to private equity and 17.7% to hedge funds.

However, private equity and real estate investment programs returned less than 3% for the third quarter, and fixed income and hedge funds return around 1%.