Pensions & Investments: Plan Sponsors See Inflation, Lower Profit Margins as Biggest Risks to Stock Market
NEPC’s Brad Smith was quoted in a recent Pensions & Investments article to discuss concerns of plan sponsors found through our 2022 DB Flash Poll. View the article on Pensions & Investments’ site here.
CIO: What Do Pension Funds Worry Over Most
NEPC’s 2022 DB Flash Poll findings were featured in a recent CIO article to discuss new threats to pension plan sponsors. View the article on CIO’s site here.
NEPC survey says they are leery of rising interest rates, the Fed’s ability to handle inflation and profit margins.
. . .
“In an NEPC survey of plan sponsors, roughly one-third of whom held more than $1 billion in their defined benefit plans, the top risk was the Fed’s ability to manage inflation (listed by 32% of respondents). No. 2, at 27%, was rising interest rates. The third biggest risk (19%) was corporate profit margins. International problems—geopolitical risks of war in Europe (15%) and related to China (5%)—were next.”
PlanSponsor: DCIIA Announces Three New Advisory Councils
NEPC’s Bill Ryan was announced as chair of the newly created Institutional Consultant Advisory Council (ICAC), as part of the Defined Contribution Institutional Investment Association (DCIIA) in a recent PlanSponsor article. View the announcement on PlanSponsor’s site here.
The Defined Contribution Institutional Investment Association announced today that its Retirement Research Center has created three new Advisory Councils: Plan Sponsor Advisory Council (PSAC), Advisor Institute Council (AIC) and Institutional Consultant Advisory Council (ICAC).
DCIIA also announced the new chairs for each council. Christina Elliott, the Executive Director of Ohio Deferred Compensation, will chair PSAC. Jim O’Shaughnessy, the President of Retirement and Private Wealth at Hub International, will chair AIC. Bill Ryan, a partner and Head of Defined Contribution Solutions at NEPC, will chair ICAC.
The three new councils will join the Academic Advisory Council (AAC).
“The Advisory Councils are a crucial component of our strategy around research and industry engagement,” said Lew Minsky, DCIIA president and CEO. He added the councils will be focused on “practical, actionable, and unbiased insights that are relevant to the entire retirement ecosystem.”
“The Councils have a critical role to play in ensuring that all industry stakeholders’ viewpoints, needs, and challenges are considered throughout the research lifecycle,” said Rob Austin, chair of the DCIIA Retirement Research Center Executive Committee.
PlanSponsor: Rising Interest Rates Top Institutional Investor Concerns
NEPC’s Brad Smith was featured in a recent PlanSponsor article to discuss the findings of our 2022 Governance Survey. View the article on PlanSponsor’s site here.
Rising interest rates, a potential economic recession and geopolitical tension are the top concerns impacting the portfolio construction of institutional investor organizations in the next six months, according to NEPC 2022 Governance Survey respondents.
. . .
One reason for the emphasis on rising interest rates is the effect rates have on corporate pension funds. Unlike for many investors, “inflation is beneficial for most corporate pension plans,” explained Brad Smith, partner at NEPC and a member of the firm’s corporate defined benefit team, in an email. “Since most U.S. pension plans don’t offer [cost of living adjustment] benefit increases, higher levels of inflation can be a benefit to plan sponsors. “The most immediate impact from higher expected inflation is higher interest and discount rates. As discount rates rise, the estimated value of pension liabilities fall.”
Smith added, “Provided the remaining diversifying assets don’t fall as much as the liability estimates, the plan’s funded status can actually rise. During this recent market environment, we have seen many of our clients’ funded status estimates hold steady despite the significant market selloff.”
NEPC scored the factors, in a range from one to five, with factors expected to have the greatest impact ranked lower, according to the survey.
Click here to continue reading the full PlanSponsor article.
Markets Group: Investing in Private Equity in '23 Could Prove Challenging to Over-Allocated Institutions
NEPC’s Josh Beers was quoted in a recent Markets Group article to discuss the importance of vintage year diversification. View the article on the Markets Group site here.
Institutional investors should be eager to deploy capital into private equity in 2023. The asset class, after all, capitalized on the economic downturns at the start of the century and during the Great Financial Crisis to produce stellar returns.
Speaking to the investment committee of the Pennsylvania Public School Employees’ Retirement System (PSERS), Corina Sylvia English, a principal with consultant Hamilton Lane, said, “the data shows the best time to invest in the asset class is right now. You are buying into a business at a low point – that is a value driver for operational focus.”
Scott Nuttall, co-CEO of KKR, concurred. Speaking on the investment firm’s third quarter earnings call, he said that “in an environment like this, companies still need capital. And we find private capital tends to have less competition at a time like this. Public markets are more difficult. Corporate M&A is more challenged. So, we’ve got a lot of capital to put to work. Companies still need it.”
But numerous institutional investors – particularly public pension funds – may need to overcome challenges to be highly active private equity investors in the coming year. These includes being overallocated to the asset class, a reduction in distributions and fund stakes selling at a discount in the secondary market. Industry observers, though, say that it is a necessity for investors to continue investing in the asset class and maintain exposure to the 2023 vintage year.
. . .
Josh Beers, a principal and head of private equity for NEPC, said institutional investors need to continue deploying capital into the private equity sector to ensure vintage year “diversification” within their portfolio. “It’s super important,” he said. “You can go through business cycles where there are some great opportunities and other cycles that are not great.” General partners, he said, on average take three years to deploy capital – a period in “which a lot can happen.”
Click here to continue reading the full Markets Group article.
Pensions & Investments: Plan Sponsors - Navigating Uncertain Times Takes Careful Investing and Communication
NEPC’s Thomas Cook was quoted in a recent Pensions & Investments article highlighting key takeaways from the Defined Contribution West conference earlier this month. View the article on Pensions & Investments’ site here.
In an age of uncertainty, plan sponsors should continue to focus on protecting participants’ savings through making careful investing decisions and maintaining strong communication tactics.
That was one of the overarching themes at Pensions & Investments’ Defined Contribution West conference Oct. 23-25 in Carlsbad, Calif., as industry experts discussed how to handle rising inflation, increasing cybersecurity attacks, and environmental, social and governance investing, among other topics.
. . .
A lively panel discussion on the highly polarized topic of ESG investing focused on what moderator Thomas Cook, a senior consultant at NEPC, described as “bringing it back to the middle.”
ESG investing is not about “not investing in this or that industry” but rather about “how it can be used as a risk-return economic factor within investment processes,” he said.
Click here to continue reading the full Pensions & Investments article.
CIO: The Rise of 3rd Party Search Firms That Find Consultants
NEPC’s Steve Charlton was quoted in a recent CIO article to discuss how the process of bringing in the right investment advisers for asset allocators has reoriented how the consulting industry does business. View the article on CIO’s site here.
Increasingly, asset owners are hiring consultants to find consultants. These search experts can help a plan’s board of trustees the whole market while also spotlighting any potential conflicts of interest.
. . .
“The advent of OCIOs has increased the need for search providers, according to Steve Charlton, partner, and head of client solutions at consultancy NEPC. He notes that ‘the more concepts that are introduced into the business, the more necessary it is for a third party to be coming in to evaluate.’
Charlton says roughly a third of NEPC’s business originates from search providers. NEPC offers both advisory and OCIO solutions, with NEPC’s current OCIO business overseeing $60.7 billion in assets.”
CIO Announces 2022 Asset Management and Servicing Industry Innovation Award Finalists
NEPC is pleased to be nominated as a finalist for the 2022 Chief Investment Officer Industry Innovation Awards in the following categories: Diversity and Consultant of the Year, recognizing Kristin Reynolds and Allan Martin. It’s an honor to be recognized as one of the firms driving change and enhancing performance in institutional investing. View the announcement on Chief Investment Officer’s site here.
This year, we are celebrating those who have thrived and been incredible leaders as markets have turned rough and inflation and rates have risen. We are planning to gather in person to applaud their hard work on December 6 at Chelsea Piers in New York City.
As we selected these finalists, our mission was to search the industry for firms that have truly and reliably enhanced the portfolios and improved the work of their clients. While canvassing and reviewing the award nominations, we learned just how hard so many of you are working in the face of a global shift in monetary policy that has made markets challenging.
. . .
The finalists are as follows:
Consultant of the Year
- Mercer Consulting, in recognition of the service of Cori Trautvetter
- NEPC, in recognition of the service of Kristin Reynolds and Allan Martin
- Aiperion
Diversity
- Ariel Investments
- PIMCO
- Verus Investments
- NEPC
Click here to continue reading the full Chief Investment Officer announcement.
The Boston Globe: Harvard, the Richest University, is a Little Less Rich After a Tough Year in the Markets
NEPC’s Kristin Reynolds was quoted in a recent Boston Globe article to discuss how Harvard’s endowment shrunk by $2.3 billion to $50.9 billion during a down time for financial markets. View the article on The Boston Globe’s site here.
Humility is not the first word Harvard University brings to mind.
But last year, when the storied school’s endowment soared in value along with just about every kind of investment on the planet, administration officials wisely tempered their enthusiasm – and expectations for the future. Their message to students, staff, alumni, and the often envious outside world: Markets give and markets take away.
Sure enough, their caveat got a call-back on Thursday as Harvard reported that the value of its endowment – including investments and donations – slumped by $2.3 billion to $50.9 billion in the year ended June 30, amid an ugly selloff in financial markets.
. . .
“My impression is the worst is yet to come,” said Kristin Reynolds, a partner at investment consultant NEPC in Boston and the team leader of its endowments and foundations group. “However, I would say that private markets performance had been so strong the year prior, that it is still helping portfolios relative to public markets.”
Click here to continue reading the full Boston Globe article.
Pensions & Investments: Interest in OCIO Remains Strong, but Growth Slower Than Anticipated
NEPC’s Steve Charlton was quoted in a recent Pensions & Investments article which covered the findings of NEPC’s 2022 Governance Survey. View the article on Pensions & Investments’ site here.
Institutional investors are eager to utilize the services of outsourced chief investment officers, but the market is not growing as quickly as anticipated, according to a new report from investment consultant NEPC.
. . .
“As investment programs have grown over the past several years, we’ve also seen firsthand the increased desire and need for ways to streamline management and operational functions,” said Steve Charlton, partner and head of client solutions at NEPC, in a news release announcing the survey results. “There are often good reasons to maintain trusted advisory relationships, which has slowed the overall progression to OCIO. Some clients look to maintain decision-making responsibility or hand off only portions of the governance process, whereas others have decided to move entirely to OCIO. We believe advisory and OCIO can co-exist within our firm and intend to provide the best services consistent with our clients’ objectives.”
Click here to continue reading the full Pensions & Investments article.