U.S. institutional investment plans were challenged in the third quarter of 2023 by global equity market declines driven by investor concern that a longer period of high interest rates will be needed to slow the U.S. economy. The median return for institutional asset owners included in the Northern Trust All Funds Over $100 million plan universe was down -2.2% for the quarter ending September 30, 2023.

The Northern Trust Universe tracks the performance of 398 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.

The Northern Trust Foundation and Endowment (F&E) universe produced a -1.1% median return for the quarter, while the Northern Trust Public Funds universe median return was down -1.7% and the Northern Trust Corporate (ERISA) universe median return was -5.1%.

“We saw a decline in U.S. equity returns during the quarter, and this is likely due to the fact that investors feel the economy has been slow to respond to the Federal Reserve’s recent rate increases,” said Amy Garrigues, global head of Investment Risk and Analytical Services at Northern Trust. “As a result, there is a lingering fear that higher rates will remain for longer than was previously anticipated.”

The Northern Trust U.S. Equity Program universe generated a -3.3% median return for the third quarter. Large cap stocks outperformed small cap stocks, with the Russell 1000 large cap index returning -3.2%, compared to the Russell 2000 small cap index which returned -5.1% for the period.

The Northern Trust U.S. Fixed Income program universe median return was down -2.9% for the quarter and negative results were driven by climbing government bond yields. The U.S. ten-year government bond yield rose from 3.81% to 4.59% during the quarter, while the two-year government bond yield rose 16 basis points to 5.03%.

The F&E universe median one-, three- and five-years returns were 9.9%, 6.9% and 6.2%, respectively. The F&E universe Foundation and Endowment is continuing the trend to allocate funds to the private equity asset class. The median U.S. equity allocation for the F&E universe increased to 19.2% during the quarter. The median allocation to private equity now stands at 25.1%, while the median allocation to U.S. equity allocation decreased to 17.6% during the quarter and U.S. fixed income fell to 8.3%.

Public Funds universe median multi-period returns for the one-, three- and five-year periods stand at 9.1%, 5.6% and 5.2%, respectively. The median third quarter allocation to U.S. and international equity are 27.9% and 12.1% respectively. The median exposure to U.S. fixed income for Public Funds is 22.9%. The segment continues to increase the allocation to Private Equity, where the universe median allocation now stands at 15.1%.

ERISA plan universe median one-, three- and five-years returns were 5.1%, -1.2% and 2.7%, respectively. The U.S. fixed income asset class remains the largest ERISA plans allocation, with a median allocation of 49.8%. The segment continues to have small allocations to Alternative assets where the median allocation to Private Equity is 3.4% and the median allocation to Hedge Funds is 0%.

About Northern Trust

Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 25 U.S. states and Washington, D.C., and across 22 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2023, Northern Trust had assets under custody/administration of US$14.2 trillion, and assets under management of US$1.3 trillion. For more than 130 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit us on northerntrust.com. Follow us on X (formerly Twitter) @NorthernTrust or Northern Trust Corporation on LinkedIn.

Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at https://www.northerntrust.com/terms-and-conditions.

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