NORTHERN TRUST DATA SHOWS INSTITUTIONAL INVESTORS EXPERIENCED BIG DROP IN ASSET VALUES IN 2008

Posted January 23, 2009

CHICAGO – Most US institutional investment plan sponsors endured a dismal year in 2008, with the median plan losing a quarter of its value in the 12-month period ending December 31, 2008, according to data in the Northern Trust Universe. The data represents the performance results of more than 300 large institutional investment plans, with a combined asset value of approximately $600 billion, who subscribe to Northern Trust performance measurement services.

The median plan in the performance measurement database posted a 25 percent loss for 2008, including a 13.1 percent loss in the fourth quarter. Foundations & Endowments performed marginally better than the Public Funds or Corporate ERISA pension segments for the year, but lagged in the final quarter, according to median return data.

“These results confirm that institutional investors were not spared from the impact of the global financial crisis in 2008, despite their efforts to diversify beta sources in recent years,” says Paul d’Ouville, Global Director of Investment Risk & Analytical Services at Northern Trust. “While US equities were the primary source of negative results, the markets provided few safe havens, and last year’s extraordinary environment could prompt a reassessment of risk models and investment strategies by large institutional investors.”

Northern Trust performance data show that investment managers hired by plan sponsors were in line with their benchmarks, and that allocations to private equity and fixed-income contributed to plan returns. Foundations & Endowments (F&E), for example, derived a relative advantage through larger allocations to private equity, which returned (minus) 5.7 percent in 2008, compared to the US equity program return of (minus) 37.5 percent and the international equity program return of (minus) 43.2 percent for the year. The median F&E plan had an 11 percent allocation to private equity, while the median Corporate ERISA plan allocated less than 1 percent to the asset class.

The losses in 2008 also drove down longer-term performance numbers for the institutional plans. While five-year median returns remain positive, three-year returns dipped into negative territory as of December 31, 2008.

“These results provide an important data point, quantifying the results in 2008 and over longer periods so that institutional investors can check their performance against their larger peer groups,” says William Frieske, Performance Consultant, Northern Trust Investment Risk & Analytical Services.