Strong equity market performance boosted U.S. institutional investments in the first quarter of 2012, reports Northern Trust. Plan sponsors in the Northern Trust Universe gained approximately 7% at the median for the three months ending March 31.
Public funds set the pace with a median return of 7.7%, while corporate ERISA pension plans and the foundations and endowments segment each gained 6.9% at the median.
“The main driver of first quarter performance was U.S. equities, a core holding in most institutional plans,” said William Frieske, senior performance consultant, Northern Trust Investment Risk & Analytical Services (IRAS). “After positive returns in 10 of the last 12 quarters, the median plan has gained 15% in the past three years. Active investment management has also helped plans in the Northern Trust Universe to generate returns ahead of their assigned benchmarks, according to our data.”
While U.S. equity remains a key investment for U.S. institutional investors, the past decade has seen many plan sponsors shift to a greater focus on alternative assets, according to a research paper by Northern Trust.
According to Asset Allocation Trends and Challenges, allocation to U.S. equity decreased from 50% of total assets in 2000 to 32% in mid-2011. In the same period, private equity allocations rose from 3.5% of total assets to 8%, and allocations to hedge funds went from near zero to more than 5% of all mandates.
“Alternative assets have become mainstream over the past decade, especially within the largest plans,” says Jeff Feeney, North America region head of IRAS. “Investing in alternative assets brings the promise of better than public market returns but also the reality of administrative demands brought on by the lack of transparency and liquidity inherent in these asset classes.”