Institutional Investors Struggled in Q2

Easy Money Tamps Down Volatility

Global markets continued their decline during the second quarter of 2022 due to continued high inflation, interest rates hikes, the rising risk of a recession and ongoing political unrest in Europe. The median return for institutional asset owners included in the Northern Trust All Funds Over $100 million plan universe was -9.1% for the quarter ending June 30, 2022, the worst performing quarter since Q1 2020 and the second worst in the past 10 years.

The Northern Trust Universe tracks the performance of 376 large U.S. institutional investment plans, with a combined asset value of more than $1.3 trillion, which subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.

“Institutional investors continue to feel the impact of global events as well as inflation in the U.S. economy,” said Amy Garrigues, global head of Investment Risk and Analytical Services at Northern Trust. “Rising global food and energy prices, the ongoing war in Ukraine and China’s inability to curb COVID-19 infection rates have all complicated the hopes for an imminent global recovery. In the U.S., the Federal Reserve accelerated its plan to increase interest rates during the quarter which resulted in a sell-off of stocks from all sectors.”

The Northern Trust U.S. equity program universe median return fell 16.4% for the quarter. The S&P 500 large cap index was down 16.1% during the three-month period. The Fed’s 50 basis point rate increase on May 4 also accelerated selling in the bond market, and the Northern Trust US Fixed Income program universe median return was down -5.0% for the quarter.

The Northern Trust Corporate (ERISA) universe median return for the second quarter was -10.9%, while its one-year return remained in negative territory at -14.6%. The U.S. fixed income asset class remains the largest ERISA plan allocation at a median allocation of 48.7%. It grew 3.0% during the period because of lower equity valuations. The median allocation for U.S. equity was 19.6%.

The Northern Trust Public Funds universe median returned -7.9% in the quarter. As of June 30, the end of the 2022 fiscal year for most U.S. public funds, the median one-year return for plans in the Northern Trust Public Funds universe stood at -7.1%. Public funds have relatively higher equity allocations, with median second quarter allocations to U.S. and international equity at 28.9% and 13.2% respectively. The median exposure to U.S. fixed income for public funds fell 0.5% to 20.7%.

The Northern Trust Foundation and Endowment (F&E) universe produced a -7.0% median return for the second quarter. The F&E median U.S. equity allocation dropped to 19.1% in Q2 from 20.8% in Q1. The median allocation to private equity was 24.6% while the median allocation to U.S. fixed income remained below 10%.

Results of U.S. plan level universes as of June 30, 2022:

2nd Qtr 1 Yr 3 Yr 5 Yr
ERISA -10.9% -14.6% 2.9% 4.8%
Public Funds -7.9% -7.1% 5.9% 6.2%
Foundations & Endowments -7.0% -6.7% 8.0% 7.5%

Source: Northern Trust

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