Northern Trust Universe Reveals Positive News for US Institutional Investors

As volatility in institutional plan performance has nearly doubled over the past two years, US pension plans, endowments and foundations in the Northern Trust universe have rebounded from the median 4.7% loss three months earlier.

(November 1, 2010) — US pensions, endowments, and foundations in the Northern Trust universe have reported a median 8% gain for the third quarter — a rebound from the median 4.7% loss three months earlier.

“It’s turning out to be a roller-coaster year for institutional plan sponsors, with strong returns in the third quarter following losses in the second quarter and moderate gains in the first quarter,” said William Frieske, senior performance consultant, Northern Trust Investment Risk & Analytical Services, in a statement. “As a result of these quarterly swings, volatility in institutional plan performance has nearly doubled over the past two years.”

The median gain for endowments and foundations, which reported a composite alternatives allocation of close to 40%, came to 7.4%, according to the firm. Corporate and public pension plans, with composite alternatives allocations of less than 10%, posted median gains of 9.1% and 8.8%, respectively. For the 12 months through September 30, corporate pension plans have posted the biggest median gain of 11.5%, followed by public plans, with 10.4%, and endowments and foundations, with 9.6%.

“Over the longer term, corporate plans have been allocating more assets to fixed income and less to equities,” Frieske stated. “In the third quarter, the median corporate plan in our Universe had a 35% allocation to fixed income, up from 27% five years ago. In that same period, the median allocation to domestic equities dropped from 50% to 38%. Plans appear to be paying greater attention to matching their assets and liabilities in to reduce risk as they address the funded status of their pension plans.”

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The Northern Trust Universe represents the performance of about 300 large institutional investment plans, with a combined asset value of approximately $630 billion, which subscribe to Northern Trust performance measurement services.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Four former San Diego officials have agreed to pay financial penalties to settle SEC charges accusing them of misleading municipal bond investors about the city’s fiscal problems.

(October 29, 2010) — Four former San Diego city officials have agreed to pay $80,000 to settle a Securities and Exchange Commission (SEC) fraud suit that alleged they misled investors in municipal bond offerings about the city’s pension and retiree health care obligations.

It’s the first time that the SEC has secured financial penalties against city officials in a municipal bond fraud case as it seeks to crack down on perceived abuses.

The suit has accused the city’s officials of failing to disclose the size of the San Diego City Employees’ Retirement System’s (SDCERA) unfunded pension liability when the city sold bonds. Without admitting or denying the allegations, former City Manager Michael Uberuaga, former Auditor Edward Ryan, and former Deputy City Manager for Finance Patricia Frazier each agreed to pay $25,000, according to the SEC, while former City Treasurer Mary Vattimo will pay a $5,000 penalty.

“These former San Diego officials are paying a price for their actions that jeopardized the interests of investors and put the city’s current and future retirees at risk,” Rosalind Tyson, director of the SEC’s Los Angeles regional office, said in a statement. “Municipal officials have a personal obligation to ensure that investors are provided with complete and accurate information about the issuer’s financial condition. These former San Diego officials are paying a price for their actions that jeopardized the interests of investors and put the city’s current and future retirees at risk.”

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According to the statement by the US regulator, the SEC filed the charges against the city officials in April 2008, alleging that they were aware that San Diego had been intentionally underfunding its pension obligations to increase benefits while deferring the costs. The SEC claimed the officials were aware that the city would face difficulty funding its future retirement obligations without new revenues or cuts to employee benefits or city services. But, “despite this extensive knowledge, they failed to inform municipal investors about the severe funding problems in 2002 and 2003 bond disclosure documents,” the SEC’s statement said.

Similarly, in August, the State of New Jersey settled claims that it fraudulently misled municipal bond investors while underfunding the state’s two biggest pensions covering teachers and other state employees in the first SEC case against a state.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742