CNBC: More Colleges to Close Even as Top Schools Experience Application Boom
NEPC’s Kristin Reynolds was quoted in a recent CNBC article to discuss why some smaller colleges and universities might be closing their doors even amid a surge in applications. View the article on CNBC’s site here.
Citing inflationary pressures and sinking enrollment, more colleges are set to close in 2023.
Already, Presentation College in Aberdeen, South Dakota; Cazenovia College in Cazenovia, New York; Holy Names University in Oakland, California; and Living Arts College in Raleigh, North Carolina, announced they will shut down after the current academic year.
The consequences of fewer students and less tuition revenue since the start of the pandemic have been severe, according to Kristin Reynolds, a partner and leader of NEPC’s Endowments and Foundations practice.
“Larger institutions can weather the storm,” she said.
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“The largest endowments are able to support their schools a little bit more,” Reynolds said. “These colleges are continuing to attract students through scholarships and that makes them more competitive.”
Pensions & Investments: Sponsors Mull New Methods to Fight Inflation
NEPC’s Bill Ryan was quoted in a recent Pensions & Investments article to discuss what he believes should be the primary defense against unexpected inflation for retirees. View the article on Pensions & Investments’ site here.
Defined contribution plan sponsors have shied away from putting inflation-sensitive investments in their plan menus, but with inflation still high, some are starting to re-evaluate their thinking.
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“The participants who probably would benefit the most are those over 60 in retirement who are taking withdrawals from their account and they’re trying to maintain their spending on gas and bread,” said Bill Ryan, a partner and head of defined contribution solutions at NEPC LLC in Chicago.
Retirees will need a “higher weight to inflation-sensitive assets because they’re trying to hedge against the unexpected change that would compromise their spending ability,” Mr. Ryan said.
Even then, though, Mr. Ryan and other consultants would be wary of adding new investments, preferring instead to allow target-date funds to do the heavy lifting in fighting inflation risk.
“I do think the primary defense against unexpected inflation or even unexpected equity rallies or shocks is through a target-date fund or some diversified portfolio because they help each of the asset classes play a certain role that counterbalance each other,” Mr. Ryan said.
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Pensions & Investments: SECURE 2.0 Fails to Provide All of the Help Sought by 403(b) Plans
NEPC’s Bill Ryan was quoted in a recent Pensions & Investments article expressing his disappointment that CITs failed to cross the finish line for 403(b) plans. View the article on Pensions & Investments’ site here.
The retirement industry’s effort to have 403(b) plans offer collective investment trusts looks like the political version of the famous Peanuts cartoon featuring Lucy, Charlie Brown and a football.
Lucy holds the football. Charlie Brown tries to kick it. She pulls the ball away at the last minute.
After several years of lobbying Congress, retirement industry trade groups thought they had a breakthrough with the retirement security package SECURE 2.0, which, among other things, made enhancements in the use of auto enrollment, annuitization and linking corporate retirement plan matches to student loan payments.
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“SECURE 2.0 was allegedly a slam dunk,” said William Ryan, the Chicago-based partner and head of defined contribution plan solutions at NEPC LLC, expressing disappointment that CITs failed to cross the finish line for 403(b) plans and wondering when Congress might try again.
“It took four years to go from SECURE 1.0 to SECURE 2.0,” said Mr. Ryan, noting that those laws were achieved through bipartisan support. With divided government, “it could be a decade” before the law is changed, he said.
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Pensions & Investments: Opportunities Still Exist for CIT-Like Group Trusts in 403(b) Plans
NEPC’s Bill Ryan was quoted in a recent Pensions & Investments article to discuss 403(b) plan investment options after Congress’ failure to let executives offer collective investment trusts. View the article on Pensions & Investments’ site here.
Thwarted by Congress’ failure to let them offer collective investment trusts, executives of some 403(b) plans could offer a CIT-like investment thanks to laws and regulations already on the books.
However, and it’s a big however, the process for offering this type of pooled investment vehicle — a group trust — by investment managers can be challenging for 403(b) plans because it requires cooperation from record keepers, custodians and trust companies as well as convincing investment committees and educating participants.
To qualify, sponsors that invest in group-trust investment managers must beware of guidelines contained in several no-action letters from the Securities and Exchange Commission to avoid running afoul of prohibitions in securities laws that Congress didn’t address in the SECURE 2.0 retirement package.
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“There is a pathway,” said William Ryan, the Chicago-based partner and head of defined contribution plan solutions at NEPC LLC. “If you have more than $2 billion in assets, I would kick the tires on this.”
Mr. Ryan said perhaps 1% to 2% of all 403(b) plans might be able or are interested to pursue creating a white label separate account containing pooled investments that aren’t available to others outside of a specific sponsor and aren’t considered investments requiring SEC registration.
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FIN News: Greater Alts. Allocations Help Mega Endowments Rise Above Smaller Peers: Report
NEPC’s “Mega Endowment FY 2022 Returns” report was featured in a recent FIN News article to discuss our findings. View the article on FIN News’ site here.
Mega endowments continue to outpace their smaller peers despite the challenging market environment due in part to greater allocations to diversifying alternative asset classes, according to a recent report.
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There was a case to be made for maintaining allocations to public equities and fixed-income securities coming out of COVID-19, which challenged the merits of diversification, according to Senior Consultant Colin Hatton.
“Higher education endowments have been reducing exposure to diversifying alternatives over the past several years. However, in 2022, we saw that the larger endowments that maintained large allocations to real assets, private equity and hedge funds were rewarded due to macroeconomic factors, mainly high-interest rates and inflation,” Hatton said, in e-mailed commentary.
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“As we look ahead, we expect that real assets and active hedge fund strategies will continue to play an important role in client portfolios, but the near-term differential between public and private market performance should narrow as we head into 2023 and beyond,” Hatton said.
FIN News: Nonprofit News Special Report: 2023 Alternative Investments Outlook
NEPC’s Kristin Reynolds was quoted in a recent FIN News article to discuss vintage years and real estate markets. View the article on FIN News’ site here.
As nonprofit investors expect market volatility to continue, with the possibility of an economic recession on the horizon, many are seeking early-stage private equity, private debt, real estate, infrastructure or hedge fund strategies to capitalize on macro trends that include a slowdown in economic growth, rising inflation, emerging technologies and demographic trends.
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The historical performance of funds from recessionary periods was one reason that investment consultant NEPC is advising clients to commit to 2023 vintage funds, even if they have concerns about their portfolio’s liquidity, according to Kristin Reynolds, partner and practice leader, endowments and foundations.
“Historically, some of the best vintage years were when markets had a little more distress. If clients are concerned about liquidity, we’ve said to reduce the level of investments to each manager in their portfolio. We think the private equity GPs will start feeling pressure to deploy and they’ll find opportunities,” Reynolds said.
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NEPC’s Reynolds sees that real estate markets are varying based on property type.
“The core real estate funds have seen marks of 10% to 15%, and we’re seeing positive appreciation of industrial, but that’s really off set by off ice and retail, based on changing market dynamics. So, you are getting the inflation hedging, but maybe more so in the broadly diversified funds,” she said.
CIO: Private Market Technology Investments Are Here to Stay
NEPC’s Josh Beers was quoted in a recent Chief Investment Officer article to discuss the reasons why private technology assets are still compelling investments after a challenging year for tech companies. View the article on CIO’s site here.
“Technology is in everything that we touch, whether that’s food, medicine or commercially. It’s penetrating a lot of these areas to help solve some really big real-world problems, and I think that means it’s here to stay,” said Joshua Beers, head of private equity at independent investment consulting firm NEPC, when prompted to give an outlook on private technology assets for 2023.
Despite its prevalence in so many sectors, 2022 was not kind to technology investors. According to Goldman Sachs’ December special issue regarding global macro research, the Goldman Sachs Non-Profitable Tech Index (a measure of public equities) lost more than 50% through 2022.
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Market participants in private markets have already seen valuations falter, and private technology assets are not immune to the valuation crunch seen in the technology sector in public markets. “I think we’re going to see [valuations depreciating] more holistically [in 2023],” Beers says.
So-called ‘unicorn’ companies, or private companies with valuations greater than $1 billion, fell 48.3% last year to 308 at the end of November 2022, compared to 596 at the end of 2021, according to Pitchbook data. “When you think about simple investment theory—buy low and sell high—we think that it’s starting to set up for an environment where that could happen,” Beers offers, noting that the drop in valuations could create buying opportunities.
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“The typical path for an exit of a technology company is an IPO,” Beers says. “We’ve come off a period in which IPOs have been fairly robust. Now that window is essentially closed, and I suspect it will be closed for some time.”
While Beers attributes the lack of activity in the IPO market to valuation concerns, Luiña says “not going public is more of a choice than it is the market forces upon them. In the late [1990s], venture companies were funded typically through Series A, Series B and Series C rounds. There was very little private growth equity capital available, so companies really needed to tap the public markets to continue their growth trajectory. A lot of the value creation and a lot of the growth in those companies happened within the public markets.”
Beers verifies that companies are not limited to simply going public to access financing options or exits, as was the case decades ago. “There’s been a growing trend of [general partner]-led secondaries-type transactions in the form of continuation funds,” he says. “Activity in the venture world will start to pick up, providing liquidity to [limited partners] and some longer funds.”
Broadcast Retirement Network: What Employers Are Saying About Retirement Income
NEPC’s Bill Ryan appeared on the Broadcast Retirement Network to discuss what clients are thinking about when it comes to retirement income. View on the BRN website here or watch below.
FIN News: Inflation, Interest Rates Present Biggest Risks To Markets: NEPC Study
NEPC’s Brad Smith was quoted in a recent FIN News article to discuss concerns of plan sponsors found through our 2022 DB Flash Poll. View the article on FIN News’ site here.
Corporate and healthcare pension plan sponsors agree that combating inflation and rising interest rates are among the biggest risks to markets over the next year, according to NEPC’s latest survey.
The investment consultant’s 2022 DB Trends Flash Poll reveals the biggest risks to markets over the next 12 months in addition to how plan sponsors are assessing their glidepaths and managing allocations against the backdrop of this year’s heightened market volatility.
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“It’s been nearly a decade since plan sponsors have had to keep factors like rapid inflation and rising rates in mind when rebalancing or determining their asset allocation strategies,” said NEPC Corporate Defined Benefit and Defined Contribution consultant Bradley Smith, in a statement.
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“With rising concerns about how corporate profits will likely impact the market in the year ahead, our priority right now is helping ensure that our pension and defined contribution clients are well equipped to mitigate risk and have a clear plan of action in 2023 and beyond,” Smith continued.
ASPPA: Reticence and Risks Rife?
NEPC’s 2022 DB Flash Poll findings were featured in a recent article from the American Society of Pension Professionals & Actuaries (ASPPA) to discuss risks plan sponsors perceive and anticipate. View the article on ASPPA’s site here.
These are bracing times for retirement savers, and two recent reports offer a window into tensions savers feel and risks plan sponsors perceive and anticipate.
Economic uncertainty can breed slower progress in saving for retirement or even regression, LIMRA suggests. Even before the current economic conditions, they say, nearly 40% of those nearing retirement were very concerned that they would outlive their retirement savings.
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“The investment consulting firm NEPC buttresses the current apprehension. In a November 2022 poll of corporations and non-profits, they report that the ability of the Federal Reserve to manage inflation was the top choice of what the biggest risks are to the markets in the next 12 months. Rising interest rates came in second.
Further, NEPC says that none of the respondents that had frozen their defined benefit plan said that they were going to unfreeze it or that they had even thought about doing so.”