The Markets October 29, 2010

Institutional Investors See Gains in Q3 2010

U.S. institutional investment plan sponsors returned to positive performance in the third quarter of 2010, with a median gain of 8%, according to data in the Northern Trust Universe.
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Corporate pension plans and public pension plans each gained 8.8% at the median, while Foundations & Endowments and Wealth Management clients had median returns of 7.4%. Northern Trust said much of the difference in performance could be attributed to the larger allocations to alternative assets by F&E and Wealth clients.   

The composite allocation to private equity and hedge funds was close to 40% for F&E and Wealth, while Corporate Plans and Public Funds had less than 10% in those two asset classes, according to a news release. Third quarter returns for Private Equity and Hedge Fund programs in the Northern Trust Universe were less than 3%, trailing the Total Equity Program, which gained nearly 13% in the quarter.  

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“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%,” said William Frieske, senior performance consultant, Northern Trust Investment Risk & Analytical Services, in the announcement. “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.”  

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.
Data & Research October 29, 2010

Small Business Owners Could be Doing Better

Merrill Lynch’s “Affluent Insights Quarterly Survey” took a closer look at the state of affluent small business owners in America.   
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Merrill Lynch found that 56% of small business owners are doing better this year than last, with 34% saying their business is in the same shape as the previous year, and 9% saying it is worse.  Even though more than half said they are doing better this year than last, 69% also said they were unable to hire as many employees as they would have liked, primarily due to a lack of business/revenue (32%).   

The survey asked affluent small business owners their top business concerns, after customer satisfaction and employee payroll.  They responded that providing their employees with health care was the next most important concern (46%), followed by providing a retirement plan (23%), and being able to sustain and build the growth of their business (19%).  Merrill Lynch wanted to know why they felt providing health and retirement benefits were so important.  Thirty-one percent said it was their responsibility as an employer and 20% said it was to attract and retain talented employees.   

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Lyle LaMothe, head of U.S. Wealth Management for Merrill Lynch Wealth Management, said in a teleconference this week that financial advisers should think of individual small business owners as “corporate entities,” but what makes it extra complicated is that they have their personal finances and business finances rolled into one ball.  He said small business owners rely on advisers to keep all aspects of their finances afloat–and that their business plays a major role in their life as a whole.

When asked about the most challenging aspects of their lives, running a business came in second to raising children and was followed by maintaining a healthy marriage and a healthy lifestyle.  (Thirty-one percent said raising children was most challenging, 28% said running a business, 14% said maintaining a healthy marriage, and 10% said maintaining good health.)

Because their business finances are so tightly woven in with their personal finances, more affluent small business owners than other affluent Americans who don’t own a small business needed to tap into their personal savings and investments this year (33% versus 18%).  Twenty-four percent of small business owners expect their debt to increase in the coming year, compared to 11% of non-small business owners.  And 32% of small business owners have had to increase their spending in the past year, whereas only 16% of non-small business owners had to do so.   

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