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Portfolio construction

Institutional trends: Performance and flow leaders in 2024

July 26, 2024 - 9 min read

Natixis Investment Managers Solutions portfolio consultants monitor asset classes, investment products, and market activity both in real time and from a historical perspective. Five trends tracked in institutional portfolios thus far in 2024 are summarized below.
 

1. E&Fs lead performance pack.

Institutional portfolios posted strong returns in Q1 2024, with endowment/foundation and public pension median returns outpacing Taft Hartley and corporate pensions.

Q1 2024 performance by percentile
Trailing 1yr through Q1 2024 by percentile
x Source: Natixis Investment Managers Solutions, InvMetrics.

2. Complexity not rewarded.

Despite the strong returns, many foundations continue to lag broad benchmarks over longer time periods. Through Q1 2024, the median US foundation has trailed a 60% S&P 500®, 40% Bloomberg Aggregate portfolio by nearly 2% annualized since 1/1/2011. Larger foundations above $500 million in AUM fared much better, trailing the 60/40 bench by just 0.2% annualized.


Annualized returns since 2011
Complexity Not Rewarded Source: Natixis Investment Managers Solutions, FactSet, FoundationMark

3. Bond strategies pick up flows.

By asset flows, the institutional asset category with the largest gains was US fixed income, due in part to strong relative performance for equities, leading to rebalancing opportunities. Private debt continued to post the strongest growth on a percentage basis.


Institutional flows ($billions)
Bond strategies pick up flows Source: eVestment

4. Investment return assumptions stabilizing.

Higher yields and strong equity returns have stalled much of the momentum in recent years toward US public pension funds applying more conservative assumptions. Still, 71% of US public funds have reduced their assumption in the past four years, bringing the national average down from 7.2% to 6.9%. 


Average investment return assumption
Investment return assumptions stabilizing Source: Natixis Investment Managers Solutions, NASRA.

5. Private equity distributions dry up.

Muted IPO and M&A activity have led private equity managers to hold elevated levels of unsold assets vs. history. This means that the internal rate of return (IRR) model used for performance measurement has become more valuation driven. An alternative measure of returns, distributed to paid in capital (DPI), is much lower than usual for recent vintages. 


US private equity exit volume ($billions)
Private equity distributions dry up Source: Bloomberg

The S&P 500® Index is a widely recognized measure of US stock market performance. It is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation, among other factors. It also measures the performance of the large-cap segment of the US equities market.

This content is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the author only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates. There can be no assurance that developments will transpire as forecasted and actual results will be different. Data and analysis does not represent the actual or expected future performance of any investment product. We believe the information, including that obtained from outside resources, to be correct, but we cannot guarantee its accuracy. The information is subject to change at any time without notice.

The data contained herein is the result of analysis conducted by the Natixis Investment Managers Solutions consulting team on model portfolios submitted by Investment Professionals. The Moderate Peer Group consists of model portfolios that have been analyzed by the consulting team and have been designated as moderate by Investment Professionals.

Natixis Investment Managers Solutions collects portfolio data and aggregates that data in accordance with the peer group portfolio category that is assigned to an individual portfolio by the Investment Professionals. At such time that a Professional requests a report, the Professional will categorize the portfolios as a portfolio belonging to one of the following categories: Aggressive, Moderately Aggressive, Moderate, Moderately Conservative, or Conservative. The categorization of individual portfolios is not determined by Natixis Investment Managers Solutions as its role is solely as an aggregator of the pre-categorized portfolios. Please note that risk attributes of the Moderate Peer Group will change over time due to movements in the capital markets. Portfolio allocations provided to Natixis Investment Managers Solutions are static in nature and subsequent changes in a Professional’s portfolio allocations may not be reflected in the current Moderate Peer Group data.

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This document may contain references to copyrights, indexes and trademarks that may not be registered in all jurisdictions. Third-party registrations are the property of their respective owners and are not affiliated with Natixis Investment Managers or any of its related or affiliated companies (collectively “Natixis”). Such third-party owners do not sponsor, endorse or participate in the provision of any Natixis services, funds or other financial products.

Index information contained herein is derived from third parties and is provided on an “as is” basis. The user of this information assumes the entire risk of use of this information. Each of the third-party entities involved in compiling, computing or creating index information disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to such information.

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Institutional investing trends

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