The Natixis Investment Managers Solutions team monitors asset classes, investment products and market action, both in real time and from a historical perspective. See which trends had the greatest impact on institutional asset allocation decisions in the final months of 2021.

Public Pension Funded Status Showed Dramatic Improvement
Amidst a strong return environment for equities and other risk assets, the median public pension returned 25.8% in Fiscal 2021.1 This has led to massive improvement in funded status for state and local pension plans. Preliminary reports suggest that the average state system added 10% in funded status between Fiscal Year 2020 and Fiscal Year 2021 on a market value basis.

Estimated Funded Status Improvement, FY 2020 to FY 2021
Chart showing the Estimated Funded Status Improvement of each state system in the United States of America for the fiscal year of 2020 to the fiscal year of 2021
Source: National Association of State Retirement Administrators, Equable, Natixis Investment Managers Solutions

COLA, Anyone?
Elevated inflation throughout 2021 has led to a higher than average Cost of Living Adjustment (COLA) for many retirees. Roughly 75% of pension plans sponsored by state and local governments contain some automated COLA provisions, while others make ad hoc adjustments. Beginning in January 2022, Social Security recipients will see their payments increase by 5.9%, the largest increase since 1982.2

Underfunded Corporate Pension Plans Face Escalating Premiums
Escalating flat-rate and variable-rate premiums owed to the Pension Benefit Guaranty Corporation (PBGC) have made it prohibitively expensive to maintain underfunded corporate pension plans. The annual premium owed for a hypothetical plan shown below has more than quadrupled since 2013, further incentivizing plan sponsors to close funding gaps and offer lump sums or annuities to remove participants from their books. Premium increases after 2019 are indexed to inflation.

PBGC Premiums: Sample Plan
Chart showing a sample plan of Pension Benefit Guaranty Corporation (PBGC) which offers $500m liabilities, 90% funded, to 5,000 employees
Sources: PBGC, Natixis Investment Managers Solutions. Sample plan is $500m in liabilities, 5,000 employees, 90% funded status on PBGC basis for each year shown.

Private Equity Shines
After lagging broader equity markets for several years, eye-popping private equity returns helped lift many institutional investment programs in 2021. Return dispersion remained high with top quartile private equity programs returning as much as 50% in the first 9 months of 2021 alone. The “endowment model” used by many large philanthropic investment pools, which calls for over-allocating to alternative investments and under-allocating to fixed income, was particularly in favor, helping to lift endowment & foundation returns above other plan types.

Public vs. Private Equity ReturnsReturn by Investor Type
Public vs. Private Equity Returns, Return by Investor Type for Fiscal Year 2020 to Fiscal Year 2021
Source: InvMetrics

Dry Powder Returns
Institutional money market funds saw positive flows throughout most of 2021, with balances climbing back near the initial post-Covid peak in Q2 2020. This figure includes cash held by corporate treasurers (future capex spending, buybacks, or dividends) as well as institutional investment dollars (future flows to equity, fixed income, and alternatives), supporting future earnings growth and providing a bid for future asset prices.

Money Market Assets (1/3/18–12/29/21)
Money Market Assets from January 3, 2018 to December 29, 2021
Sources: Natixis Investment Managers Solutions, Bloomberg

1 National Association of State Retirement Administrators

2 National Association of State Retirement Administrators, Social Security Administration

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.

Investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, international and emerging markets. Additionally, alternative investments, including managed futures, can involve a higher degree of risk and may not be suitable for all investors. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.

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.

4225181.1.1