Rising Treasury rates combined with strong equity performance led to higher funded ratios for many U.S. corporate pension plans in the first quarter. Equities rallied in the three months ended March 31 and return-seeking assets contributed to a material improvement in funded ratios. Those gains were complemented by decreases in liabilities driven by increasing Treasury yields. Global equities were also up in the third quarter. Estimated discount rates for pension liabilities, based on long-duration fixed-income yields, rose approximately 24 basis points. We estimate the funded status of our ..read more

All asset classes were in the black in March as markets saw no signs of an economic slowdown in the U.S. in the first quarter, while the Federal Reserve continues its efforts to steer the economy to a safe landing. Markets have priced in a safe landing—a stable path back to inflation of 2% with no recession along the way. So far, the labor market has been resilient with inflation moderating. That said, the path to the Fed’s inflation target of 2% remains unclear. Commentary from the central bank and the FOMC interest-rate dot plot data from March indicates a willingness to allow inflation to ..read more

In this final installment of a three-part series on transferring risk from defined benefit pension plans, we highlight the ongoing discussions in the marketplace around these complex but increasingly popular transactions. As the market for pension risk transfers grows, so does the chatter and scrutiny around these involved transactions. Record-breaking deals, a large number of new entrants, and the continuing role of insurers in group pension annuities are not only leading to greater efficiencies, but also triggering greater oversight from regulators and thoughtful discussions around best pr ..read more

This paper explores the topic of investment governance for faith organizations. FaithInvest’s earlier paper, From Faith Values to Investment, focused on the importance of investment policy statements (IPS) and guidelines for institutional faith-based asset owners, as the essential governing documents required for the successful integration of faith values with investments. This paper, co-authored by FaithInvest and NEPC, looks at the broader framework of investment governance. An excerpt from the paper is shown below: The Essentials of Good Governance Like any asset owner, faith institutions ..read more

In February, pension plan sponsors experienced higher liability discount rates amid a rise in interest rates. During this period, global public equities posted strong returns, and the Treasury yield curve rose across most tenors. Total-return-focused plans likely experienced positive changes in funded status due to higher discount rates and gains from equities. NEPC’s hypothetical total-return pension plan experienced an improvement of 3.8% in funded status compared to an increase of 1.9% for our LDI-focused plan. Rate Movement Commentary The Treasury yield curve increased in February, and r ..read more

A slew of stronger-than-expected economic and corporate earnings data bolstered global stocks in February. The S&P 500 Index hit multiple milestones during the month: it surpassed 5000 and Nvidia set a record for the largest single-day market capitalization gain of $277 billion; the S&P 500 gained 5.3% last month, pushing year-to-date returns to 7.1%. Outside the U.S., the MSCI Emerging Markets Index added 4.8% in February. The rally was fueled by supportive policy announcements from China, including a surprise 25 basis points cut to its five-year loan prime rate. In response, the MS ..read more

In January, pension plan sponsors experienced higher liability discount rates as interest rates increased. During this period, global public equities posted modest gains, while the Treasury yield curve rose across most tenors. Total-return-focused plans likely experienced positive changes in funded status due to higher discount rates combined with positive equity market performance. NEPC’s hypothetical total-return pension plan experienced an improvement of 2.0% in funded status compared to an increase of 0.6% for the LDI-focused plan. Rate Movement Commentary The Treasury yield curve increa ..read more

In this second installment of a three-part series on transferring risk from defined benefit pension plans, we highlight the significant role played by insurers in these complex but increasingly popular transactions. With more companies seeking ways to scale back their defined benefit plans, the market for pension risk transfers has experienced remarkable growth, marked by wider acceptance and greater understanding around these involved transactions. As a result, the landscape has been inundated by new entrants and record-breaking deals, with insurers continuing to play a vital role in the gr ..read more

  University endowments breathed a sigh of relief in fiscal year 2023, as global investment markets bounced back from a gloomy 2022. Despite the good market news, however, many mega endowments1 posted results that lagged behind smaller institutions. This represented a significant reversal of fortune, as larger institutions have consistently outperformed their smaller counterparts over the past several years. The key ingredient in this performance trend has been the role of private equity and venture capital in mega endowment portfolios. For multiple years, the largest institutions have ..read more

It’s open season for the U.S. elections as Republicans in Iowa cast their votes on Monday to select a presidential candidate to run against President Joe Biden in November. While the 2024 presidential election will affect the U.S. economy, taxes, foreign policy, immigration and climate change, it is not the driving force behind long-term market dynamics that form the bedrock of investment portfolios. Individual election outcomes are not as transformative as macroeconomic factors such as growth, inflation and monetary policy, which tend to drive long term investment returns. At NEPC, we remin ..read more