Northern Trust: 2019 investment returns hit decade highs

The median institutional investment portfolio finished with an 18.2% return in 2019 and a 4.9% gain in the fourth quarter, according to data published in the Northern Trust Universe. Chicago-based Northern Trust said the gains marked a 10-year high for institutional investors. The bank’s data set tracks the performance of approximately 300 large U.S. institutional investment plans that have a combined asset value of roughly $1.13 trillion, which subscribe Northern Trust’s asset servicing offerings. Returns at foundation and endowment funds had the most meager gains of the various universe segments. With median returns of 16.2% in 2019, they finished far behind public pension funds that had median gains of 18.2%. Corporate ERISA plans, meanwhile, were up more than 20% on a median basis. The key difference between the groups seems to be the varying degrees of reliance on traditional investment strategies. The median domestic equity exposure at corporate and public pensions was 28.2% and 34.2%, respectively, as foundations and endowments had 28.6% in U.S. equities while only maintaining a 10.9% allocation to U.S. fixed income. Both pension segments had higher allocations to bonds. Alternative assets are widely used in the foundation and endowment universe with private equity and hedge fund median allocations standing at 15% and 11.6% as of December 31, 2019. “Strong fourth quarter performance in the U.S. and international equity markets drove stellar performance for both the quarter and the year,” 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 8.9% in the quarter, while the median return for international equity programs was 9.2%. It seems that public funds are systematically moving into alternatives at the expense of traditional equities and bonds. Northern Trust reports that the year-end equity exposure at public pensions is consistent with those five years earlier, however U.S. fixed-income exposures have fallen over 4% as investors have reallocated to alternative asset classes.

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