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Stable Value Solutions for Plan Needs
From the Oct 2020 Mass Mutual Special Report
Investment veterans aren’t strangers to volatility – they’ve been through expansions, recessions, the 2008–’09 financial crisis, and a now lengthy ongoing period of “lower for longer” yields on fixed income securities. However, no curveball caught investors quite as unexpectedly as the one-two combo of this year’s pandemic and economic crisis. Most investors will agree that the impact wasn’t as bad as it might have been, but there are unquestionably lessons to be learned and applied as investors look to 2021 and beyond. This report explores key takeaways from the pandemic, and how they can be put to good use.
1Lessons from the Pandemic Encourage Long-Term Planning
Keith McDonagh and his colleagues at MassMutual Life Insurance Company (MassMutual) are in the business of providing financial and risk management solutions for institutions – and, as you might imagine, that business has seen customers’ needs increase in a wildly unpredictable 2020. McDonagh is the Head of MassMutual’s Institutional Solutions businesses, which involve the design and delivery of solutions for pension liabilities, retirement solutions, financial returns, protection needs, and increased employee benefit costs. The solutions include pension risk transfer, bank-owned life insurance and corporate-owned life insurance (BOLI and COLI), stable value investments, mutual fund investments, funding agreement backed notes, and guaranteed interest contracts. II recently spoke with McDonagh about his observations while interacting with investors in this tumultuous year, and how the lessons learned can be applied moving forward.
What are you hearing in terms of the challenges that your institutional clients have faced and continue to face as a result of the pandemic, economic stress, and geopolitical uncertainty?
Keith McDonagh:When we started the year, no one would have been able to predict the course it would take. As the year progressed, if you asked the same people about the future, their perspective would change with each passing month. There has been uncertainty and volatility not only with the pandemic, but in terms of interest rates, equity markets, employment, the economy, GDP, trade policies and/or competition between nations, the upcoming general election – it’s an almost endless list, with uncertain, volatile, and unpredictable being its three most common adjectives.
In other words, a time when investors are asking themselves a lot more questions than they typically would.
McDonagh:对,这是另一个长名单:如何管理环境以实现我的目标?我怎样才能做好准备?我怎么能更灵活?根据需要,我如何检查和调整或枢转以满足我的期望?如何确保我有足够的流动性以满足消费者需求或消费者行为的变化?足够的流动性来利用可能由于这种波动而发生的机会?如何以低利率环境达到足够的收益率?今年有一段时间,当信贷差价衡量地扩大,然后回来,股票市场跌倒并回来,所以如何在我所说的投资哲学中实现我的目标?
在万通金融集团联合设立,旨在表彰我们想说,“你不能预测,you can prepare.” And we also like to say, “Think long term, not just short term.” What we mean when we say either is that asset owners and managers have to excel at managing risk – whether those risks are related to changes in valuations, assets and liabilities, or benefit funding – and the volatility that risk could create on their income statement and balance sheet, or at a time when they require funding to meet a need. It’s a matter of having the right arrows in the quiver to match assets and liabilities within the risk tolerances and strategic goals that have been set.
Have you seen an uptick in the number of institutions reaching out to you with a sense of urgency?
McDonagh:The dynamics have been interesting in that regard. In the first month of the pandemic, all the focus was short term. That’s where we saw the huge focus on liquidity, and as we all recall, the bond markets seized for a couple weeks as we got into late March, early April. It was also a period where those companies who may have been contemplating large transactions hit the pause button while they surveyed the environment, because they didn’t know what conditions were coming and what they might need – and it was difficult to focus on all the details of a large transaction with everything that was going on.
我们在该时间帧中看到的第二个动态是一点飞行以确定。例如,对这些第一次月份的稳定价值的解决方案需求显着增加。人们正在撤出股权解决方案并进入更稳定的解决方案,并且在试图定位并看看在更广泛的赌注之前,这种趋势和投资者之间存在相关性。
根据可能适用于养老金的一些策略,是否有更多的决策制定?也许更多关于LDI的对话?
McDonagh:There were, and I’ll frame this answer in a six-month window starting in March, because I think it’s quite insightful. In the early days, those sponsors who had engaged LDI going into the crisis were very happy, because their funded status was more stable. Those who had only been dabbling in it, or thought about it but hadn’t executed, suddenly showed a lot more interest in what LDI was about as they saw the impact of unfolding events. So, we were engaged in conversations about how LDI works, clearly, but also about some of the investment solutions, say, in a long-term bond fund, that can be used in an LDI context.
There was a second thing we saw early in the crisis. The pension risk transfer market has been growing each of the past 10 years or so, and the pipeline was quite healthy in the first quarter. In the early months of the crisis, plans that were looking at retiree carve-out transactions paused given the economic conditions. If you look at market data for the second quarter, you’ll see that activity slowed, and the transactions that were executed tended to be plan terminations, because they were already scheduled.
the companies wanted to hold cash. Second, management bandwidth – they were worried about other things.
A third dynamic is that several of those transactions that had paused came back to market in the latter months of the year. So, as the equity markets rebounded, for example, pensions plans that still have heavy equity allocations saw their funding status improved. That’s an example, but as time passed and economic conditions stabilized, management could go back to focusing on some of the risk management plans they had in place. Not back to normal, but a significant rebound from what you would have seen in, say, April, May, June, and July.
That seems to speak to a realization that they really needed to execute on things they’d been planning – a return to some sense of normalcy.<
McDonagh:It’s that feeling of “I should have paid more attention to these long-term planning considerations when times were good, so now I’m going to put it on my project plan as one of the things I need to focus on going forward.”
People talk about business continuity planning, but what we’re talking about is almost investment and financial continuity planning – you need to have a plan for how you’re going to continue on the path to achieving your long-term goals, even when things are disrupted.<
McDonagh:我们是一个共同的公司在我们的核心,与许多客户tomers who have been with us for decades. That is embedded in how we think about things, and the view I give our institutional clients, specifically, is that while you clearly need to think about the quarters and the year that you’re in, if you want to address long-term health, think in terms of years and decades. As many of us learned in business school, a successful business positions itself for success through various economic cycles and environments. Undoubtedly, there will be expansion years and contraction years, and you should position your business strategy and the products and services you offer accordingly, along with how you interact with customers and changes in consumer behavior. Asset owners should be applying those same principles to investment management and risk management, thinking both long term and short term. If you don’t, you could get imbalanced.
2Multi-Manager: A Better Fit for Retirement Investors
Consistent with its decades serving the retirement needs of clients, MassMutual is an expert provider in the defined contribution (DC) investment-only space. It makes sense, because investing for retirement requires a certain DNA and investment philosophy. The entire MassMutual Investments platform is centered around retirement-oriented outcomes, which the firm feels is best pursued by embracing a multi-manager philosophy.
为什么多经理?
更大的潜力,以更加一致,风险敏感,长期性能。这对于帮助退休投资者最小化通常导致次优投资决策的行为偏差尤为重要。在整个市场周期中适当投入的持续持续增强了他们满足退休需求的能力。
Sophisticated and rigorous manager selection and monitoring processes.强调风险管理有助于减轻对经理表现的担忧。
Portfolio construction with specific purposes,允许与投资者需求更紧密地对齐的结果。
Access to a greater range of managers without overwhelming plan participants with options。这很重要,因为数据表明401(k)计划参与者遭受“选择过载”。
几项研究表明,多经理基金的多样化效益有助于投资者满足其积累需求。虽然多元化在市场下降不受损失的同时,投资地平线(终端财富)结束时的预期投资组合价值是至关重要的 - 并非投资组合中的UPS和下降。下面的图表在添加额外管理者时,在特定的资产类别中的投资组合中终端财富的标准偏差减少。标准偏差越低,与退休存在意外的短缺相关的风险越低。
For all equity asset classes measured, the standard deviation of terminal wealth fell significantly by adding managers to the portfolio. The most risk control from manager diversification is gained in portfolios with two to three managers. The incremental benefit of adding managers beyond this number decreases as the number of managers rises.
构建多管理员组合
massmutualselects “best in class” asset managers in their respective investment style with the goal of identifying managers that can consistently deliver positive, long-term results while limiting volatility. The best-of-the-best are determined through rigorous quantitative and qualitative screening, ongoing interviews with the target firm’s management and professional staff, and assessments of the firm’s compliance organization, policies and procedures, code of ethics and regulatory history. This process includes an evaluation of the sub-advisors risk management, compliance and operations functions.
In building its multi-manager portfolios, MassMutual selects managers that invest within the same asset class but with unique and complementary styles. As a result of differentiating views on stock selection and portfolio construction, these managers will typically have minimal overlap in holdings and low correlation of excess returns.
Here are a few examples of how pairing managers in this way allows portfolios to benefit:
- 风格多样化:具有不同风格的管理人员多样化回报源。
- Larger opportunity set: Fund holdings are likely to be diversified across a wider selection of securities, with exposure to a broader range of holdings characteristics.
- Business risk diversification: Many factors may influence the performance of a single manager including turnover, investment process drift, change in ownership structure, etc. Engaging multiple managers diversifies these risks.
- 资金跨国公司的资本分配是战略性的and determined through a disciplined process that incorporates both quantitative and qualitative elements.
- 每个经理的历史回报都在旁边检查its complementary manager pairing, and in a stand-alone capacity.
- 各ma过程检查风险和回报rket regimesrecognizing that a manager’s style varies in efficacy throughout market cycles and reacts differently to positive and negative market events.
- Qualitatively, MassMutual incorporates deep insight into the manager’s strategy由其专用经理研究团队产生的风格。
- 结合这两种添加剂组合施工方法has helped MassMutual achieve more durable and persistent returns on behalf of its clients.
3Stable Value Solutions for Plan Needs
正如Keith McDonagh在他的采访中指出的那样,今年早些时候以极端波动引发的航班伴随着对稳定价值解决方案的需求激增。作为符合退休计划参与者的长期需求的承诺的一部分,按摩投资是稳定价值基金和包装的领导者。这是一个快速看,投资者如何从稳定的价值中受益。
- Stable valueis the conservative fixed income option offered in a DC plan line up designed to preserve principal for the participant saving for retirement. These solutions are purpose-built to weather volatility and are comprised of a portfolio of fixed income investments managed by an investment manager or insurance company.
- An insurance company provides a stable value wrap关于固定收入资产的组合。此包装是保障本金的保险保障,并允许参与者在账面价值下交易。稳定的价值包装还提供了对信贷率的平滑,因此固定收入资产的性能随着时间的推移而传递给参与者。目标是稳定的回报和资产保存。
- From the plan sponsor’s perspective,资产总是在市场价值上提供,如果赞助商选择转移到另一个提供商。如果市场价值低于账面价值,则任何账面价值支付都会在一段时间内进行。
- massmutualis a leading provider退休计划和资产管理人员的稳定价值解决方案。“在仅限投资的基础上,我们提供跨账户,单独的帐户和其他结构的稳定价值解决方案,”McDonagh说。“我们还为提供稳定价值资金提供稳定价值资金的资产管理人员提供解决方案,保险公司提供包装。在这些情况下,资产管理器选择包装提供商。“
- It’s a competitive landscapewhere MassMutual ranks among the largest providers based “upon our credit quality, our expertise and knowledge in the space, and our servicing of these portfolios” says McDonagh.
Stable value has been strong growth market for MassMutual and is a continued focus moving forward. MassMutual is a 170-year-old company that has been through every economic and market scenario over that timeframe. “We’re one of the highest rated and most financially strong insurers,” says McDonagh. “Our fixed income DNA has evolved over multiple market cycles, and we have deep expertise in the stable value space.”
4养老金风险转移的好处
很少有公司将在其核心业务能力中列出“管理养老金计划”。养老金计划是为您雇用的员工制定的福利,使贵公司成功。养老金计划不是您公司存在的核心原因。为了运行成功的业务,公司寻求拥有良好管理的养老金计划和相关责任,以便该公司可以专注于它所最佳的东西。
Fortunately, managing pension liabilities is a core competency of financial services providers. Should a company choose to maintain its pension plan, defined benefit services help employers manage the assets, costs and administration.
However, with market volatility and low interest rates, combined with increasing Pension Benefit Guarantee Corporation (PBGC) premiums, companies face challenges in managing the cost and uncertainty associated with their pension plans. “These concerns take time and attention away from their core business. Increasingly, entities are choosing to remove that risk by transferring the payment obligations to a financially strong insurer,” says Keith McDonagh, Head of MassMutual’s Institutional Solutions businesses.
养老金风险转移解决方案有助于公司专注于其核心业务,信心向这些人的信心继续为全面的福利期。精心设计的养老金风险转移策略有几个重要的好处,帮助公司......
- Reduce risk by transferring the uncertainties associated with plan assets and liabilities
- 消除会计和资金波动
- Lower expenses by eliminating PBGC premiums and administrative, actuarial and investment management expenses
- Enable a greater focus on your core business, increasing overall value for your organization
The most effective pension risk transfer solution is customized to best fit a company’s business needs. Pension risk transfer solutions include:
- A single-premium annuity contract with an irrevocable commitment to provide the benefits purchased, which can be funded through cash or a transfer of assets-in-kind
- Benefit payments guaranteed to the individuals (or their beneficiaries) through annuity certificates from a highly rated insurer
- 以优质的客户为中心的行政服务,信息和通信
- Availability of general account and separate account solutions
Once you choose to pursue this path, the selection of an insurer for your group annuity is an important decision that requires the consideration of a number of factors to find the right provider. The factors that matter most when looking for a pension annuity provider are financial strength, long-term value, pension experience, and service excellence.
“没有人比一家超过70年的公司在管理养老金负债和几十年来定义地平线的长期义务,”麦克杜纳克说。““作为养老金风险转移市场的领先提供商,按摩可以帮助您到达那里。”
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