Pensions & Investments: Alternatives ETFs Still Waiting for Their Big Moment with Institutions
NEPC’s Dulari Pancholi was quoted in a recent Pensions & Investments article which discusses that despite heavy allocations to other forms of alts, institutional investors and private wealth clients are not yet looking to bring alternative ETFs into their portfolios. View the article on Pensions & Investments’ site here.
Over the last few years, the allocation that large institutional investors have been willing to commit to alternatives has appeared limitless. And the larger the investor, the more likely they were to utilize alts.
With few exceptions, however, alternatives offerings in the $8.3 trillion U.S. exchange-traded product market have failed to attract significant institutional interest. Yet some recent market and product trends have helped to shine a light on the opportunities and advantages of ETFs beyond equity and fixed-income exposures.
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“Similarly, Dulari Pancholi, partner and head of credit and multiasset research at NEPC, said she has observed investment managers watching ETFs and tracking flows “to get a sense of market movement and sentiment as a measurement to better inform when they might put on or take off a trade.” Institutional investors and private wealth clients, however, are not yet looking to bring alternative ETFs into their portfolios, according to Pancholi.”
Click here to continue reading the full Pensions & Investments article.
Pensions & Investments: Infrastructure Portfolios Soar While Real Estate Stumbles
NEPC’s Matthew Ritter was quoted in a recent Pensions & Investments article to discuss the rise in infrastructure allocations and the expansion of targets based on investor appetite. View the article on Pensions & Investments’ site here.
Real estate equity assets among the top 200 U.S. retirement plans with defined benefit assets stayed relatively flat for the year ended Sept. 30 as write-downs affected performance, while infrastructure continues to grow by leaps and bounds, according to the latest Pensions & Investments survey.
The differences reflect not only performance but the maturity of the real estate asset class, into which U.S. retirement plans have invested for decades, while infrastructure has been one of the fastest growing asset classes from virtually nothing less than 20 years ago.
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“Matthew Ritter, partner and head of real assets investments at investment consultant NEPC, said in an interview that the rise in infrastructure assets is due primarily to so many pension funds creating new targets to the asset class over the past five years and building to those targets.
“Many are still underallocated,” said Ritter, so he expects those assets to continue to rise dramatically. Perhaps the most notable trend among this groundswell of investments is how the markets has evolved and expanded.
“It depends on each investor’s objectives,” said Ritter. “You can achieve return, income stream, partial inflation hedge, and overall a good diversifier for the portfolio.”
“If you look back historically, the traditional definition of infrastructure, you think of infrastructure as long-duration assets with stable cash flows, frequently in a kind of monopolistic environment.”
While that would apply to the traditional areas of investment, such as roads and electric transmission lines, Ritter said he’s seen a big growth in the areas of digital infrastructure, energy transition and renewable energy.
“We’ve increasingly seen managers view infrastructure more as private equity in nature in terms of their risk/return profile,” said Ritter. “That dynamic has expanded the appeal of infrastructure.”
Click here to continue reading the full Pensions & Investments article.
Reuters: Stocks Surge, Bond Yields Slip Ahead of Fed Decision
NEPC’s Phillip Nelson was quoted in a recent Reuters article to discuss the firm’s stance on the market’s take on interest rates. View the article on Reuters’ site here.
NEW YORK/LONDON, Jan 29 (Reuters) – Global stocks surged on Monday, with the S&P 500 closing at a new record close and European shares hitting a two-year high, as markets slashed ambitious bets at the end of 2023 on interest rate cuts by the Federal Reserve and other central banks.
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The Wall Street Journal: There’s a New Option in Your 401(k). Read This Before You Try It.
Bill Ryan, Head of Defined Contribution Solutions at NEPC, sat down with The Wall Street Journal to discuss why bespoke retirement plans, such as managed accounts, are not always worth the additional cost. View the article on The Wall Street Journal’s site here.
What’s the best option for your 401(k), one-size-fits-all or a custom fit?
Most of us go with the one-size-fits-all option, putting our retirement savings in target-date funds built to maximize returns based on our timelines for retirement. A growing number of people, however, are choosing the custom fit in the form of managed accounts, which seek to tailor investment portfolios and advice to their situations.
As with clothing, the custom option will cost you. What investors have to determine is whether a managed account merits the price.
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Only about 15% of people in managed accounts typically provide the information needed to personalize their portfolios, said Bill Ryan, head of defined contribution solutions at NEPC. Without data on factors including risk tolerance and outside account balances, people mightmiss out on the potential for extra value that they are paying for, he added.
A small fraction of employers auto-enroll workers in managed accounts, but most plans that offer them leave it up to savers to choose to sign up. Most 401(k) plans offer only one managed account service, making it impossible for employees to comparison shop.
Click here to continue reading the full Wall Street Journal article.
Chief Investment Officer: Public Equities Drove University Endowment Returns in 2023
NEPC’s mega-endowments white paper data was recently featured in an article to discuss what caused many smaller universities to outperform larger university endowments in 2023. View the full article on Chief Investment Officer’s site here.
What allowed the U.C. San Diego Foundation to outperform all of its university endowment peers last year? Its equity-heavy portfolio.
The $1.4 billion university endowment for the University of California, San Diego returned 11.3% in fiscal year 2023, which ended June 30, 2023, the highest reported return of any endowment with more than $1 billion in assets for the period, according to data tracked by NEPC LLC.
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Of the 62 endowments with assets of more than $1 billion tracked by NEPC, six had negative returns in fiscal year 2023. The University of North Carolina, Duke University, Princeton University, Vanderbilt University, Washington University St. Louis and MIT endowments returned losses of 0.4%, 1.0%, 1.7%, 2.0%, 2.3%, and 2.9%, respectively.
What united these funds was their very high allocations to alternative investments, which generally underperformed other asset classes in the fiscal year, most notably private equity.
Click here to read the full interview on Chief Investment Officer’s site.
Chief Investment Officer: Investors’ Interest Rate Expectations Unrealistic, per NEPC
NEPC’s Phillip Nelson and Tim McCusker were recently quoted in an article to discuss how after many years of low borrowing costs, too many people have the delusion that these will return. View the full article on Chief Investment Officer’s site here.
To many investors, it is back to normal for interest rates, meaning they expect the sunny days of low single digits will return soon. Consulting firm NEPC begs to differ.
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The Fed, which had jacked up interest rates to combat the inflationary surge, thinks the mission is accomplished and is talking about lowering its benchmark federal funds rate from its current band of 5.25% to 5.50%. Many investors are applauding, expecting lower rates to further juice the stock market.
That buoyant scenario is simply not likely, according to an NEPC webinar on Thursday. A lot of people “are anchored to low inflation,” said Phillip Nelson, the consulting firm’s head of asset allocation. As a result, “the market is biased toward low rates.”
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Meanwhile, in a related delusion, NEPC’s strategists contended that investors remain besotted by the stock market’s bullish performance and believe more is on the way.
Trouble is, noted Tim McCusker, NEPC’s CIO, the S&P 500’s recent rise has merely recovered ground lost in the 2022 slump. The index’s new peak level set on Thursday, of 4,894.16, was just slightly more than the January 3, 2022, apex of 4,796.56. Thus, he said, “This has been a round trip.”
FundFire: Corporate Pensions Try to Protect Funded Status amid Market Uncertainty
NEPC’s Jake Mallinson was quoted in a recent FundFire article to discuss where most defined benefit plan investors plan to allocate their assets, according to our latest Defined Benefit Trends Survey. View the article on FundFire’s site here.
Corporate pensions are prioritizing funded status protection rather than return maximization amid fears of a market downturn, according to a report published by NEPC in November.
The consulting firm interviewed 51 companies and healthcare organizations with defined benefit plans ranging from $100 million to more than $300 billion in size about their market sentiment and liability-driven investments, or LDI.
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“The increase in fixed income returns, especially for defined benefit plans that have large allocations to fixed income, saw that big jump in expected return on assets,” said Jake Mallinson, a consultant at NEPC.
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Long duration corporate or Treasury bonds are the most popular LDI instruments, according to the report.
“That shift in investing is really looking to de-risk the portfolio over time and lock in those funded status gains,” Mallinson said.
Read the full article on FundFire’s website here.
Celebrating Growth: NEPC Announces New 2024 Partners and Principals
BOSTON–December 6, 2023—NEPC, LLC one of the industry’s largest independent, research-driven investment consulting firms, today announced the election of six new partners and the promotion of five new principals across the firm. These new elections and promotions will be effective January 1, 2024.
2023 has seen strong growth for NEPC and its client portfolios. These new promotions highlight NEPC’s commitment to cultivating an experienced team across the firm that clients can trust will help them achieve their long-term goals.
“NEPC takes immense pride in nurturing and empowering our exceptional talent,” said Michael Manning, Managing Partner of NEPC. “It’s an honor to watch our team grow within the firm and also to bring in fresh perspectives.
The newly elected Partners are:
- Rick Ciccione, Senior Consultant
- Rose Dean, CFA, Senior Consultant
- Oliver Fadly, Head of Private Debt Investments
- Joe Nankof, ASA, Senior Consultant
- Deirdre Robert, CFA, CAIA, Senior Consultant
- Daniel Runnals, CFA, CAIA, Senior Consultant
NEPC’s new Principals are:
- David Barnes, CFA, CAIA, Senior Consultant
- Peggy Boraks, Senior Controller
- Aaron Chastain, CFA, Senior Consultant
- Nick Mann, Senior Investment Director, Private Markets
- Emma O’Brien, Senior Consultant
Manning also stated, “These well-deserved appointments are a testament to our culture and core beliefs of elevating the experience and value we bring to the table to provide our clients with best-in-class solutions.”
For more information on NEPC’s employee workforce and to explore open opportunities, click here.
About NEPC, LLC
NEPC is an independent investment consultant, private wealth advisor, and OCIO provider serving over 400 retainer clients and $1.6 trillion in total assets. Combining a proprietary research team dedicated to the long-term challenges facing investors with our unique client-centric model, NEPC builds forward-looking investment portfolios for institutional investors and ultra-high-net-worth individuals. To learn more about NEPC, visit nepc.com.
Media Contact:
Laura Nascimento
WSJ Pro: Oil Prices Could Disrupt Soft Landing for U.S. Economy
NEPC’s Phillip Nelson, Director of Asset Allocation, sat down with WSJ Pro to discuss energy prices in the U.S. economic outlook. View the article on WSJ Pro’s site here.
Energy prices are a wild card in the U.S. economic outlook, says Phillip Nelson, director asset allocation at NEPC.
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“…A spike in oil prices, possibly triggered by a flare-up of geopolitical tensions, could create “another challenging dynamic,” with higher inflation and weaker economy, he says. Nelson adds that the upcoming presidential election is likely to have a “minor influence” on NEPC’s outlook. “I think whether it’s looking at President Biden or Mr. Trump, we know what their policies are,” he says.”
Business Insider: Scott Shleifer Steered Billions Into Startups for Tiger Global. With His Reign Now Over, the Industry Wonders What's Next.
NEPC’s Sarah Samuels was quoted in a recent Business Insider article which focuses on the stepdown of Tiger Global executive Scott Shleifer and the overarching trend of succession planning. View the article on Business Insider’s site here.
Billionaire Scott Shleifer stepped down from his role leading Tiger Global’s private investing unit.
The firm has been accused of fostering a “bro culture” that led to a $10 million settlement. Many of Tiger’s private bets have struggled thanks to rising interest rates and a global slowdown.
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“Succession risk in alternative funds is much more acute in private market strategies since they’re less liquid, said Sarah Samuels, head of investment manager research for NEPC, which advises more than $1 trillion of institutional capital on which funds to back.
“Institutions are comprised of people, and they change,” said Samuels, speaking generally about leadership changes at investment managers. Typical hiccups for leadership transitions include “a lack of proactiveness and transparency,” she said.”
Click here to continue reading the full Business Insider article.