Pensions, Endowments Gain 0.29% in Quarter

U.S. pensions and endowments gained 0.29% for the three months ended Sept. 30, as bonds rose and stocks fell, according to a report released Thursday by Wilshire Associates.

The third quarter was the second straight period that performance lagged behind the targets of most public and private pensions, which seek annual returns of 7% to 9%.

The 350 retirement pools, foundations and endowments with $1.9 trillion in assets that make up Wilshire Associates’ Trust Universe Comparison Service had a median loss of 0.02% for the second quarter.

For the first nine months of the year, the median return for the funds was 3.26%, according to Wilshire, a Santa Monica-based pension consulting and analytics firm. The funds gained 12.5% for the 12 months ended Sept. 30, and had an annualized three-year return of 7.05%.

“These are moderate to low returns this year, and in context they come after 2003, when equities rose more than 20%,” said Steven Foresti, a Wilshire managing director. “Year to date is subpar but not horrible, so over the three years we’re back to a reasonable return at 7%.”

The Standard & Poor’s 500 index fell 2.3% in the third quarter, and was up 0.24% for the first nine months of the year. The Lehman Bros. U.S. aggregate index of bonds gained 3.19% in the third quarter, and was up 3.35% for the first nine months of 2004.

Foundations and endowments with more than $1 billion of assets fared best in the quarter, gaining 0.73%. All endowments, meanwhile, trailed the benchmark, gaining 0.16%. Public funds had a median return of 0.48%, while those with assets of more than $1 billion returned 0.55%. Corporate funds gained 0.4%, while those with more than $1 billion returned 0.5%.

Corporate funds had the largest stake in equities on Sept. 30, investing 62.4% of their assets in stocks, compared with 62% for endowments and 61% for public funds, according to Wilshire. Public funds were the biggest bond investors, with 30% of assets in bonds, compared with 28.5% for corporate funds and 19.1% for endowments.

Foresti said Wilshire’s long-term forecast of diminished returns from both stocks and bonds over the next 10 years has some pension funds looking into alternative investments, such as hedge funds.

“Certainly you’ve seen a ramp-up on the research side of things, in terms of stones being overturned in areas pensions may not have looked before,” Foresti said. “Whether that shows up on the allocation side remains to be seen.”