In an effort to help financial advisers and plan sponsors meet fiduciary obligations, CUNA Mutual Retirement Solutions has partnered with investment monitoring subsidiary Envestnet | Retirement Solutions (ERS).
Due to the constant change of market dynamics, as well as evolving regulations such as the upcoming Department of Labor (DOL) fiduciary rule, plan sponsors and plan advisers are considering outsourcing substitutions in order to ensure fulfillment of fiduciary responsibility. ERS Fiduciary Advantage looks to help plan sponsor/plan adviser relationships by delivering fiduciary protection, support and investment monitoring, through the use of technology, institutional caliber-research and a staff of investment professionals.
Through the use of the ERS SCORE (Style, Cost, Organization, Risk and Execution) methodology, as well as qualitative and quantitative criteria, ERS will be able to examine financial products in order to provide a subset of investments. The plan fiduciary solution will also offer data integration, research, analytic tools and comprehensive reporting, according to Chris Phillips, director of institutional sales for CUNA Mutual Retirement Solutions.
“We believe ERS will deliver the level of customization advisers expect, along with an integrated platform that will bring both value and ease of use,” says Phillips. It’s everything retirement plan advisers and plan sponsors are looking for to meet their obligations to participants.”
As more and more assets are invested in portfolios that consider environmental,
social and governance (ESG) factors, researchers are attempting to better measure
the effectiveness of so-called “impact investing,” both in terms of financial performance
and as it pertains to meeting the moralistic goals of ESG.
According to a new analysis published by the Center for
Retirement Research at Boston College, “New Developments in Social Investing by Public Pensions,”
public pension funds continue to engage in social investing, most recently
divesting from Iran and fossil fuels, for example. Other institutional investors,
from corporate-sponsored 401(k) plans to university endowments, are making
investments that utilize “ESG screens,” and still more are instituting a combination
of traditional and ESG investing.
CRR observes there is an
increasing amount of empirical evidence across each of these approaches
that shows incorporating ESG factors into investment decisions can at least marginally
improve the investment selection process and enhance risk-adjusted returns.
After all—it’s no real surprise that publically traded companies that utilize their
resources more efficiently and which process waste and address social/environmental
challenges more skillfully than their competitors would also perform better financially,
especially over long-term investment horizons.
However, as in the wider market, there are many ESG or
impact investment programs available, some of which will outperform and many more
that will not. Put simply, CRR says social investing by large-scale
institutions is no sure-fire financial bet, and in fact such investing is more
likely to be detrimental to performance when it is so rigid as to declare whole
market segments, such as oil and gas development, off limits. Further,
especially in the public pension context, ESG investing can “conflict with the
views of beneficiaries and taxpayers, and interfere with federal policy.”
CRR adds that social and environmental investing is often
not very effective from a moralistic standpoint, either—because there is still
a preponderance of market participants who have no interest in ESG or impact
investing. In practice, as one large university endowment drops its shares in an
over-polluting petrochemical company, for example, other investors happily step
in to buy the divested stocks, potentially at a discount due to the large
volume being traded. Until this paradigm shifts, it will be very difficult for
ESG investments to deliver on their stated ethical and moralistic goals.
CRR concludes that, at least for public pensions in which
public taxpayer dollars are being invested and for which the state carries the
ultimate benefit liability, it is not an appropriate time to engage in social
investing.
NEXT: Agreement and disagreement
from other providers
Given that the investment markets include many diverse
participants and providers, it’s no surprise that conflicting points of view
are easy to find. In fact, on the same day the CRR published its
analysis, a new study
from Greenwich Associates and American Century Investments emerged, finding
rapid growth in the use of impact investing among both institutional and individual
investors.
To gain a better understanding of the impact investing
trend, the firms interviewed approximately 75 U.S. institutional investors,
more than 50 professional buyers at intermediary distribution platforms, and more than 150 financial advisers. Based on interview data, the analysis suggests up
to one third of institutional investors already plan to
increase portfolio allocations to impact investing in the coming three years. Fully
one-quarter of the institutions/advisers surveyed plan to boost allocations by more than 10%.
Perhaps even more important to note, the research finds three-quarters
of decisionmakers for intermediary platforms and 80% of financial advisers
believe client allocations to impact investments will increase in the next
three years.
“There is a clear—and growing—desire among institutional
investors to use their investment pools to support both the financial and
societal goals of participants, organizations and stakeholders,” says Greenwich
Associates Consultant Andrew McCollum.
But even amid the growth, the study results reveal that
attitudes and perceptions about impact investments vary widely, “and that
assets of pension funds, not-for-profit endowments and foundations, and
individual investors are flowing into a category that is not yet well defined …
Investors also vary in their levels of satisfaction with current impact
investing efforts.”
“While the vast majority of study participants say they
expect impact investments to deliver at least market-rate returns, 40% of
corporate pension funds and 44% financial advisers say they would be willing to
accept lower returns in order to achieve a positive social impact,” the analysis
continues. “Public pension funds and defined contribution plans see superior
investment performance as a requirement for investment.”
Diverging from the conclusions of the CRR research, the
Greenwich and American Century research suggests the belief that investments
should align with personal values and societal goals is being embraced by
investors of all types, “setting the stage for continued expansion of impact
investing throughout global financial markets.”
“The definition and best practices of impact investing will
take shape and solidify as the category attracts new participants and assets,”
McCollum concludes. “During this maturation phase, investors will benefit by
working with intermediaries and asset managers willing to help educate them
about impact investing and define the proper role for the category within their
portfolios.”
NEXT: Additional
opinions abound
A third piece of ESG
research to emerge this week cuts something of a middle ground between the other reports.
According to new survey released by RBC Global Asset Management, concerns about the environment, social
welfare and corporate integrity continue to focus a spotlight on ESG factors in
investing. Despite this, the research warns, most investors lack any sophisticated
understanding of how ESG factors impact their portfolio.
“Many investors remain unconvinced about ESG as a source of
alpha or risk mitigation—creating a perception gap that smart, active investors
and managers can exploit in order to gain a competitive edge,” the analysis
argues.
“It is striking to see that asset owners remain doubtful of
ESG’s efficacy even as so much capital pours into ESG-related investments,” says
Ben Yeoh, senior portfolio manager at RBC Global Asset Management. “Clearly,
many investors have yet to understand the financial benefits of ESG. That gap,
between the empirical data and perception in the marketplace, represents an
opportunity that can be exploited with thorough, fundamental analysis of
environmental, social and governance considerations.”
According to RBC, the survey reveals “lingering uncertainty”
over responsible investing’s ability to drive financial performance and
mitigate portfolio risk.
“Despite a growing body of research to the contrary, only
one third of respondents said they considered ESG to be a risk mitigator,” Yeoh
observes, “Even fewer (30 percent) said they considered ESG investing to be a
source of alpha. This may derive from investors’ dissatisfaction with the
amount of relevant data that companies are providing … Nearly half of respondents
said they were somewhat or completely dissatisfied with the ESG-related
information that companies make available.”
Like the other analyses, the RBC research concludes that technology, competition and other factors
have made traditional equity markets increasingly efficient, and that’s made
alpha outperformance increasingly difficult to come by. This state of affairs
is the same one pushing increased use of alternative investments by traditional
investors, and it is fueling strong growth for ESG.
“But ESG remains an inefficient or at least immature market
where, because ESG factors are not yet fully reflected in valuations,” RBC
concludes, “Investors who understand how to identify and properly value those
factors can still gain an advantage.”