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Researchers find investors with greater alternative exposure outperformed in Q3

Susan BarretobySusan Barreto
November 30, 2021
in Endowments and Foundations, Investor News, Open Access, Pensions
Researchers find investors with greater alternative exposure outperformed in Q3

By leungchopan

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Institutional investors saw meager gains in the third quarter thanks to volatility equity markets, but those that had alternatives exposure were buffered from the worst of the market downturn in Q3, according to industry figures.

Taft-Hartley plans had a median return of 0.36% for the quarter, leading all plan types, according to Investment Metrics. Endowments and foundations’ median return for the quarter was -0.42%, the poorest versus other plan types.

Within Taft-Hartley plans, the best performers had greater exposure to alternatives (10.3% vs. bottom quartile performers’ 6.3% allocation) and real estate (12% vs. an 8% allocation among bottom quartile performers). Poorer performers were more heavily invested in equity and fixed income, according to the research provider.

Investment Metrics looked specifically at Taft Hartley and endowment and foundation plans. The firm sources data directly from over 4,000 institutions using its own reporting and analytics solutions including investment consultants, advisors and asset owners.

The research team found that private equity strategies returned 7.8% for the quarter compared to real estate at 3.29%, equity at -.89% and .17% for fixed income at the median level.

According to the Northern Trust Universe, the median U.S. pension plan sponsor saw a return of 0.2% last quarter. The custodial bank’s statistics found that foundations and endowments produced a 0.9% median return in the quarter ending September 30, 2021, slightly ahead of public funds, with a median return of 0.4%, and Corporate ERISA pension plans at 0.0% for the third quarter.

The Northern Trust Universe tracks the performance of 380 large U.S. institutional investment plans, with a combined asset value of more than $1.4 trillion, which subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.

Domestic equity and fixed income receive the largest allocations across client portfolios for all market segments in the Northern Trust Universe.

The Northern Trust U.S. equity program universe reported a -0.1% median gain in the third quarter, in line with broad stock market indexes. The Northern Trust U.S. fixed income program universe had a median return of 0.1% for the quarter, with high yield bonds gaining 0.9% or more for the period.

Public pension funds have the highest allocations to equity, according to Northern Trust, with the median U.S. equity allocation at 32.2% at the end of the second quarter. International equity median exposure came to 15.2%. The median exposure to U.S. fixed income for public pensions was 21.0%.

Foundation and endowment portfolios, meanwhile, had a median U.S. equity allocation of 21.2% in the third quarter. International equity median exposure was 8.2% and the median exposure to U.S. fixed income was 8.7%. In the foundation and endowment universe, private equity and hedge fund median allocations come in at 21.8% and 9.3% respectively as of quarter end.

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