The second quarter of 2013 brought modest gains for public pension funds in the United States while delivering losses to corporate pension plans, according to new Northern Trust Universe data.
In the three months ending June 30, U.S. public pension funds gained 0.1%. The second quarter of 2013 also ended a year of robust performance for these plans, many of which end their fiscal year on June 30. The median public pension fund in the Northern Trust Universe gained 12.2% at the median for the one-year period, up from a 1.4% gain in the prior year.
“Public funds benefited from greater exposure to equities, including international stocks, as U.S. equities and non-U.S. equities were the top two performing asset classes over the year,” says William Frieske, senior performance consultant with Northern Trust’s investment risk and analytical services.
But America’s corporate pension plans lost 0.9% at the median during the second quarter of 2013. “The spectre of rising interest rates weighed on fixed income in the quarter, driving down prices for longer-duration bonds, which make up a large share of assets in [corporate pension] plans,” explains Frieske.
The median plan in the foundations and endowments segment gained 0.3% in the second quarter thanks to heavier investments in alternative assets.
Overall, America’s institutional investment plans recorded a flat performance in the period ending June 30, with the median plan in the Northern Trust Universe losing about 0.1% as meagre returns from fixed income and international equities cancelled out gains from U.S. stock.
In the second quarter of this year, the median U.S. equity program in the Northern Trust Universe gained 2.8%, slightly ahead of the Russell 1000 Index. The median fixed income program lost 2.9%, compared with a 2.3% loss for the Barclays Aggregate Bond Index. Alternative asset classes had a positive quarter, with private equity programs up 3.7%, real estate up 2.3% and hedge funds gaining 1.8% at the median.
For the 12 months ending June 30, U.S. equity programs in the Northern Trust Universe returned 22.2%, compared with 21.2% for the Russell 1000 Index. Non-U.S. equity programs returned 15.8% at the median.
While U.S. equity is a core allocation in all three segments, public funds allocated about 18% to non-U.S. equities at the median, compared with a weighting of about 11% in corporate plans and foundations and endowments.
The Northern Trust Universe tracks the performance of about 300 large U.S. institutional investment plans, with a combined asset value of approximately US$855 billion (C$887.66 billion), which subscribe to Northern Trust performance measurement services.