Article: Large Plans Benefit from Illiquid Investments

Scott Treacy | September 11, 2022

Large Institutional Plans Struggle in 2022

The inflation concerns from 2021 have materialized and were amplified by the Russian invasion of Ukraine in February 2022. In addition, energy prices have soared in the first six months of this year and have contributed to higher inflation.  These factors have prompted the Fed to raise the Fed Funds Rate at a faster pace than they or the market expected.  These factors have led to a sell-off in the public equity markets, with the S&P 500 index down 20% year-to-date through June 2022.1  The employment situation in the US remains strong despite the somber consumer sentiment about the future. According to the University of Michigan’s Survey of Consumers, the July reading is 51.1 (remaining near an all-time low)2, while the Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) registered 53% in June (the lowest since June 2020).3 The Fed is taking appropriate steps to get inflation back under control via quantitative tightening and increasing the Fed Funds Rate,4 and as this happens, capital markets should normalize.  However, based on our analysis of the Investment Metrics Plan Universe data, large institutional plans with greater than $500 million in plan assets have had a devastating first six months of 2022.  This conclusion is based on their net of fees returns year-to-date.  The one bright spot for plans has been their illiquid investments, private equity, and private real estate.   

Trailing Performance

Our analysis of the Investment Metrics Plan Universe database included those plans with greater than $500 million in plan assets.  This database was represented by 148 plans with a total of $316 billion in plan assets.  The median plan return year-to-date was -13.3%, and the trailing 12-month median return was -10%.  This capital market downturn has severely impacted many plans’ ability to meet their expected return targets, typically 7%. 

Allocations to Select Growth Assets 

Over the past two years, the growth asset class allocations from large plans have come down in favor of the more defensive US fixed income asset class. As a result, we have seen a double-digit increase in the US fixed income asset class over this same period at a median level.  This observation is on top of the fact that US fixed income tends to be the highest asset allocation for large plans. Unfortunately, this asset allocation decision did not offer much of a reprieve.  The Bloomberg Barclays US Aggregate Index is down 10.4% year-to-date through June.  To add insult to injury, for many plans, their allocation to US Equity represents one of the largest allocation to growth assets for large plans, similar to US fixed income, and this asset class has been the hardest hit in 2022. 

Near-Term Growth Asset Performance

Plan allocations to US Equity have seen a negative 20% year-to-date return, at a median level, from these investments.  As mentioned earlier, the illiquid investments have provided best performance in this down market.  Private equity and private real estate have provided positive returns at a median level over this time period.  It is important to note that these illiquid investments, presumably, have benefited from not having a daily traded public market assessing their value.  Either way, these alternative investment returns have outpaced US public equities in the near-term. 

Long-Term Returns

The case for adding illiquid investments to large plans with long investment horizons has been strengthened over this period.  Over rolling three-year periods going back to June of 2020, we have seen strong returns from these illiquid investments in addition to the positive down market near-term performance.  In particular, private equity returns have been compelling.  US equity returns have come back down to earth after a blistering decade of double-digit returns. 


It has been a tumultuous time in the capital markets. Institutional plans have performed poorly through the first six months of this year and have much ground to make up.  Public equity investments, which historically is a main driver of good performance, has become one of the main detractors.  US fixed income investments have not helped either. The one bright area that is seeing positive returns is the illiquid private equity and private real estate investments.

1 S&P Dow Jones Indices, S&P 500, S&P Global, June 30 2022,  2 Joanne Hsu, Survey of Consumers, The Regents of the University of Michigan,  3 Timothy R. Fiore, CPSM, C.P.M., Manufacturing PMI, Institute for Supply Management, June 2022,  4 Board of Governors of the Federal Reserve System, Plans for Reducing the Size of the Federal Reserve’s Balance Sheet, May 4 2022, 


The material presented in this document is an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or any issuer or security or similar.

This document contains general information only, does not consider an individual’s financial circumstances and should not be relied upon for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should always be given to consult a Financial Advisor before making an investment decision. 

Investment Metrics, a Confluence company, does not provide investment advice and nothing in this document should be considered any form of advice. Investment Metrics accepts no liability whatsoever for any information provided or inferred in this document.


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