Investment returns were down significantly for institutional plan sponsors in Q1 2020 as a result of COVID-19’s effect on the financial markets, according to Northern Trust Universe Data.
The Northern Trust Universe tracks the performance of approximately 300 large US 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.
Mark Bovier, regional head of investment risk and analytical services at Northern Trust, said: “Poor Q1 performance amid historic volatility in the US and international equity markets drove institutional plan returns for the quarter.”
“US equity programmes, 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.”
Bovier added: “The US equity programme’s past quarter median return was the lowest since the universe posted a median return of -23.1 percent during global financial crisis in Q4 2008. The international equity program’s quarterly median return is the lowest this century.”
Meanwhile, the US fixed income programme universe median return was 0.3 percent for the quarter, according to Northern Trust.
It noted that bond prices rose during the quarter, pushing down yields — the 10-year treasury note yield fell from 1.9 percent to 0.7 percent during Q1.
Of the three institutional segments tracked by Northern Trust, corporate ERISA pension plans performed the best with a reported median return of -8.1 percent.
The data showed that public funds had a median return of -12.6 percent and foundations and endowments produced a -11.6 percent median return in the Q4.
ERISA plans benefited from a large allocation to fixed income securities. Northern Trust data showed that US 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.
Northern Trust Universe also observed that the median US equity allocation for ERISA plans declined almost 5 percent, to 23.6 percent at the end Q1.
US equity exposure remains significant for the universe; it is down from 33.9 percent five years prior, Northern Trust said. International equity median exposure was 7.6 percent in the Q1.
Elsewhere, public fund plans have the highest allocations to equity, with the median US equity allocation at 30.3 percent in Q1 down almost 4 percent from the prior period, and international equity median exposure at 13.9 percent.
The median exposure to US 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, it was noted.
Foundation and endowment plans had a median US 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 US fixed income was 11.8 percent. Alternative assets are widely used in the foundation and endowment universe with private equity and hedge fund median allocations at 15.8 and 11.3 percent, respectively as of quarter-end.
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