Institutional Investors Fared Poorly in August

“The decline in asset values that hit typical public defined benefit plans, endowments and foundations was primarily due to poor equity performance across the globe”, says Andrew Wozniak from BNY Mellon.

The funded status of the typical U.S. corporate pension plan declined in August, dropping by 2.5 percentage points to 84.2%.

While liabilities fell slightly due to widening credit spreads, the decline was driven by a larger drop in asset values, according to BNY Mellon Fiduciary Solutions. Public plans, foundations and endowments also failed to meet targets due to declining asset values.

For the typical U.S. corporate plan, funded status dipped as low as 81.2% on August 24, but has since rebounded. Liabilities fell by 0.9% during the month, with the Aa Corporate discount rate rising by 9 basis points to 4.44%.

“The second half of August served as a wake-up call to investors who had been lulled to sleep by several months of low volatility in the markets,” says Andrew D. Wozniak, head of BNY Mellon Fiduciary Solutions. “Corporate defined benefit plan sponsors were somewhat insulated from the full brunt of the volatility due to rising credit spreads, which led to a decline in liabilities.”

Public defined benefit plans in August missed their return target by 4.7% as assets declined 4.1%, according to the August BNY Mellon Institutional Scorecard. Public plans have fallen short on year-to-date return targets by 6.6% and remain below their annual return target.

The August BNY Mellon Institutional Scorecard also noted that for endowments and foundations, real return was down 4.4%. According to the monthly report, asset returns for the typical endowment and foundation fell 4.3% over the past year, which is behind the spending plus inflation target by 9.8%.