PlanAdviser: NEPC Looks at ROI of Managed Account Savings Advice
NEPC’s Defined Contribution Team was featured in an article by PlanAdviser to discuss their latest white paper, The Real ROI: Analyzing Savings in Managed Accounts. View excerpts below or the full article on PlanAdviser’s site here.
Consultancy NEPC’s defined contribution team argued in a white paper released Monday that the return on investment from one-time savings advice for early to mid-career participants in a managed account will not offset the ongoing fees. Instead, the firm advocates for plan sponsors to consider automatic escalation as a way to boost savings outcomes for participants.
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The firm undertook the paper, in part, as it works with plan sponsor clients who are at times “getting pushed to add this feature,” says Mikaylee O’Connor, principal, head of defined contribution solutions at NEPC.
“What we’ve seen is that plan sponsors have over time added this service without necessarily going through the full due diligence process,” she says. “As part of our fiduciary duty in working with clients, we’ve spent time over the last number of years looking into managed accounts and really trying to understand the value add.”
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O’Connor agrees that plan sponsors often want to offer more personalized solutions to participants. But she urged them to think carefully about how best to personalize.
“I think for some who are approaching retirement who have multiple pools of money and want to think about their overall financial picture, they may be a good candidate for some sort of personalized service,” she said. “But for the vast majority of people, I just don’t think that is going to happen; and we see that with managed accounts, people are not engaging with the service as they should be.”
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“The reason for the negative ROI is that the managed account fee was based on the participant’s DC assets,” NEPC’s team writes. “As the participant’s assets grew faster than their salary, the incremental year-over-year rise in fees was greater than the incremental year-over-year increase in the participant’s salary, and therefore savings. This was especially true for participants younger than age 40 whose managed account investment allocation would have high exposure to equities, similar to a target-date fund.”
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O’Connor went on to say that, in such a model, a managed account could offer a more a la carte service, in which a participant could opt-in for additional services.
“It can be on the participant to say I’m willing to pay something additional, which is a much better model than having everyone pay the higher fee,” she says.
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“A plan sponsor could help almost their entire population by increasing their savings rates for free by just implementing auto-escalation,” O’Connor says. “You’re really putting people on a good path without them paying for it.”
Click here to continue reading the full PlanAdviser article.
Bloomberg TV: PE Firms Gorge on Debt for a Risky Payoff to Investors
Bloomberg: Private Equity Won’t Stop Gorging on Debt to Pay Investors
NEPC’s Sarah Samuels provides her thoughts around private equity and investors in spaces such as education and healthcare, showcasing that private equity fees may not be necessary for these clients. View the article on Bloomberg’s site here.
Private equity investors are clamoring for their payouts. A risky approach to meeting their demands is setting records — and getting more popular.
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“Private equity portfolios do not exist in a vacuum and general partners may not appreciate the puzzle that a college is trying to solve for its students or a hospital is for its patients,” said Sarah Samuels, head of investment manager research at NEPC, a limited partner consulting firm. “We don’t believe that private equity fees are really appropriate for those creating returns solely from leverage and financial engineering. We look for GPs who create value through earnings growth and multiple expansion.”
In Conversation with Julie Segal: How Much Longer Can Companies Go on Paying 12 to 14 percent on Debt?
NEPC’s Oliver Fadly spoke with Julie Segal on her podcast “In Conversation with Julia Segal” and they discussed the state of private credit after the immense changes we’ve seen over the last 15 years. Listen to the podcast on Institutional Investor here.
Pensions & Investments: NEPC’s Sarah Samuels Pens Children’s Book “Braving Our Savings” Aimed at Investing, Financial Literacy
NEPC’s Sarah Samuels was featured in a recent Pensions & Investments article discussing her new children’s book, “Braving Our Savings”. View the article on Pensions & Investments’ site here.
Sarah Samuels said she wasn’t set up for success in the investment industry — and she wants to change that for the next generation.
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“I think every kid deserves the opportunity to be a steward of this capital, like we are, and to break generational cycles of making ends meet. But, it can be difficult if you don’t have the right training to make it in this industry,” she said.
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“When I talk about the power of capital being tremendous and making the world go round, I really felt that acutely,” she said.
The book follows Holland and London (her daughters’ names) as they learn about investing after not having enough money for ear piercing. More sophisticated concepts in the book, including stocks, bonds and diversification, target older children and parents, Samuels said.
Click here to continue reading the full Pensions & Investments article.
PLANADVISER: Participant Data and the Race for Ownership
NEPC’s Mikaylee O’Connor was quoted in a recent PLANADVISER article to discuss the concerns of plan sponsors regarding participant data and the evolution of how it’s being used. View the article on PLANADVISER’s site here.
“Amid the rise of machine learning and continued digital transformation across the retirement landscape, the role—and value—of Big Data in the industry appears to only be getting, well, bigger. For plan advisers, the increase in data availability and use creates myriad opportunities to better fit plan design to the needs of plan sponsors and better tailor financial advisement to the needs of participants.
But the debate continues as to whether plan sponsors must treat participant data as a plan asset, and regulations around the proper use of such data continues to evolve, according to industry players.”
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“One of the biggest areas of concern for plan sponsors is that their plan data is going to be used in a way to sell participants on something they don’t need or get them to leave the plan when they shouldn’t,” says Mikaylee O’Connor, head of defined contribution solutions at NEPC. “That’s an area where there’s still a dance going on between plan sponsors and advisers.”
Click here to continue reading the full PLANADVISER article.
Nasdaq Trade Talks: Managing Liquidity in Today’s Environment
NEPC’s Sarah Samuels spoke with Jill Malandrino on Nasdaq TradeTalks to discuss managing liquidity in today’s environment. Watch the segment on Nasdaq’s site here.
Institutional Investor: Liquidity Tension Between LPs and GPs Persists
NEPC’s Sarah Samuels spoke alongside Steve Moseley, managing director at GP-stakes firm Wafra, at the SALT Conference in New York on Monday to discuss the tensions that exist between GPs and LPs. Read excerpts from article below or view the article on Institutional Investor’s site here.
“Tough markets have sparked tension between investment managers and the allocators who supply them capital.
With liquidity tough to access on both the buy and sell sides of the market, the delicate relationship between limited and general partners may be more balanced than it used to be — but that doesn’t mean things are easy.
“This is a gnarly market,” said NEPC managing director Sarah Samuels. “It’s not one we’ve seen in a long time… We’re all being tested.”
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“GPs think LPs want liquidity because they’re being greedy,” Samuels said. “LPs think GPs are being greedy by not giving them liquidity.”
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As for the liquidity problem? According to Samuels, LPs have found ways to commit, even if they have to write smaller checks than previously given liquidity constraints. But for those that can, there is immense opportunity.
“On the opportunity side, this is one of the best times to put your capital to work, but it feels really scary,” she said.
Click here to continue reading the full Institutional Investor article.
FIN News: Q1 2024: Small-Cap Equity Hiring Sees Uptick
NEPC’s Jennifer Appel and Nedelina Petkova were quoted in a recent FIN News article highlighting recent interest in the small-cap space. Read excerpts below or view the full article on FIN News’ site here.
Publicly-traded large-cap companies continue to garner the attention of media and investors, but allocator interest is beginning to look down market to the small-cap sector.
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Following the outsized performance in the U.S. large-cap space in 2023, investment consultant NEPC is not surprised the data shows increased interest in the small-cap space.
“Investors are likely looking for places to put capital to work with large-cap valuation extended relative to history and growth expectations being outsized in the near-term. We are also not expecting a recession this year given the resilient economic backdrop, further supporting the trend,” Senior Investment Directors Jennifer Appel and Nedelina Petkova said, in a joint e-mailed response to questions.
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To NEPC’s Appel, who aides in setting the firm’s macroeconomic outlook, dynamic asset class views and capital market assumptions, as well as Petkova, who oversees long-only global equity strategies, small-cap exposure is often associated with higher expected growth rates than their large-cap counterparts.
“Further, many small-caps are more directly exposed to their domestic economy as opposed to the geographically diversified return streams that are present in many large multinational companies,” they said, adding that “small-cap assets generally reflect less efficient portions of capital markets and can be fruitful areas for active management to add value as a result.”
In a recent NEPC webinar Where is the Value in Equities?, Petkova indicated there is significant dispersion in smaller-cap spaces including U.S. small-cap, ACWI ex. U.S. small-cap and emerging markets small-cap, which supports the view that those areas can be “alpha rich” as they are less efficient and therefore, specialized manager skill can be “integral.”
“Utilization to global mandates can help investors outsource U.S. versus non-U.S. in that decision, optimizing overall performance by considering the interactions there. There also is inherent flexibility to invest across more regions and countries, adapting to changes and market conditions and for managers to take advantage of new investment opportunities as they arise,” Petkova said, in the webinar.
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Small-cap names notably have an elevated sensitivity to interest rates and while markets began expecting a dramatic path lower for the Fed Funds rate that fueled a strong year-end rally across equity markets, NEPC finds the dynamic may have increased interest in the space.
“As 2024 has progressed, many of those rate cuts have been squeezed out as the economy shows continued resilience and inflation pressures have re-accelerated. While small-caps appear relatively attractive on a valuation basis versus large-caps, we expect more caution on the space in the near-term as higher-for-longer rates and stickier inflation levels are likely to weigh more significantly on smaller firms than large,” Appel and Petkova said.
FundFire: ‘Strategic Procrastination’ Might Serve Corporate Pensions Well: Webcast
Janis Kane, Director of LDI Solutions at NEPC, spoke about the viability of corporate DB plans during a recent FundFire webinar. Read more highlights, including thoughts on re-opening plans, in the snippets below, or view the article on FundFire’s site here.
While most corporate pensions do not have the funded surplus level that allowed IBM to re-open its defined benefit pension last year, companies ought to consider giving themselves time to see if they can get there, panelists on FundFire’s Exchange webcast said Monday.
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“Since IBM’s announcement, there have been many conversations among plan sponsors about potential courses of action, but very few are prepared to follow suit just yet, said Janis Kane, director of liability-driven investment at consultant NEPC
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“While we don’t see or anticipate an immediate uptick in the re-opening of DB plans, we’re having increased discussions on the uses of surplus,” she said.
Read the full article on FundFire’s website here.