Investment returns were down significantly for institutional plan sponsors in the first quarter of 2020 as a result of the Coronavirus global pandemic effect on financial markets. The median plan in the Northern Trust Universe finished with a loss of 11.6 percent for the three months ending March 31, 2020.
The Northern Trust Universe tracks the performance of approximately 300 large U.S. institutional investment plans, with a combined asset value of approximately $1.0 trillion, which subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.
“Poor first quarter performance amid historic volatility in the U.S. and international equity markets drove institutional plan returns for the quarter,” said Mark Bovier, regional head of Investment Risk and Analytical Services at Northern Trust. “U.S. equity programs, the largest allocation in most plans in the Northern Trust Universe, had a median return of -22.1 percent in the quarter, while the median return for international equity programs was -22.9 percent. The U.S. equity program’s past quarter median return was the lowest since the universe posted a median return of -23.1 percent during global financial crisis in 4Q 2008. The international equity program’s quarterly median return is the lowest this century.”
Meanwhile the U.S. fixed income program universe median return was 0.3 percent for the quarter. Bond prices rose during the quarter, pushing down yields. The 10-year Treasury Note yield fell 1.9% to 0.7% during the quarter.
Of the three institutional segments tracked by Northern Trust, Corporate ERISA pension plans performed the best with reported a median return of -8.1 percent, while Public Funds had a median return of -12.6 percent and Foundations and Endowments produced a -11.6 percent median return in the fourth quarter.
ERISA plans benefited from a large allocation to fixed income securities. U.S. fixed income exposure was 40.4 percent for the median ERISA plan at the end of the first quarter, a 4.0 percent increase from the end of 2019. Meanwhile, the median U.S. equity allocation for ERISA plans declined almost 5 percent, to 23.6 percent at the end of the first quarter. While U.S. equity exposure remains significant for the universe it is down from 33.9 percent five years prior. International equity median exposure was 7.6 percent in the first quarter.
Public Fund plans have the highest allocations to equity, with the median U.S. equity allocation at 30.3 percent in the first quarter, down almost 4 percent from the prior period, and international equity median exposure at 13.9 percent, The median exposure to U.S. fixed income for Public Funds was 27.1 percent, an increase of more than 3 percent over the prior quarter and a change resulting from the equity market sell-off during the quarter.
Foundation and Endowment plans had a median U.S. equity allocation of 22.8 percent in the quarter, down more than 5 percent from the end of 2019. International equity median exposure was 9.1 percent and the median exposure to U.S. fixed income was 11.8 percent. Alternative assets are widely used in the F&E universe with private equity and hedge fund median allocations at 15.8 and 11.3 percent, respectively as of quarter end.
Results of U.S. plan level universes as of March 31, 2020:
1st Qtr 1 Yr 3 Yr 5 Yr
ERISA -8.1% 2.5% 5.6% 4.8%
Public Funds -12.6% -3.9% 3.0% 4.1%
Foundations & Endowments -11.6% -3.7% 3.4% 3.9%
