Products August 8, 2019

Investment Product and Service Launches

Northern Trust builds portfolio analytics tool; Transamerica lowers multiple investment fund fees; Mesirow Financial issues U.S. small cap sustainability vehicle; and more.

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Art by Jackson Epstein
Art by Jackson Epstein

Art by Jackson Epstein

Northern Trust Builds Portfolio Analytics Tool

Northern Trust has launched a new investment analytics tool, providing institutional investors with insights when tracking and analyzing risk and performance across portfolios.

This latest enhancement from Northern Trust’s Investment Risk and Analytical Services (IRAS) group introduces Performance RADAR, a new proprietary reporting tool offering a contemporary user experience for accessing performance, attribution, contributions and ex-post risk results online across individual and aggregated portfolios.

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“Performance RADAR allows asset owners and asset managers to amalgamate and synthesize large amounts of complex data though flexible visualization tools,” says Serge Boccassini, product lead – Investment Accounting and Analytic Solutions at Northern Trust. “Our clients can find information quickly using powerful graphics and intuitively compare performance results. The result is that we provide clients with greater insights into their analytics—faster and more efficiently than ever before.” 

American Century to Launch New Suite of Investment Solutions

American Century Investments has hired three senior portfolio managers for the investment team supporting Avantis Investors, a new suite of broadly diversified, tax-efficient and low-cost investment solutions slated to launch later this year. Ted Randall, Mitchell Firestein and Daniel Ong bring 45 years of combined investment management experience to their new roles.   

Working with the firm’s Chief Investment Officer Eduardo Repetto Ph.D., Randall, Firestein and Ong will manage a range of investment solutions across market capitalizations and geographies. In late June, the firm filed a registration statement with the Securities and Exchange Commission to offer five new equity strategies. Available in exchange traded fund (ETF) and mutual fund vehicles, the new strategies are expected to rely on a proprietary investment approach based on market prices and designed to capture higher expected returns.

Randall has prior experience as a portfolio manager and vice president at Dimensional Fund Advisors (DFA), where he managed U.S., international developed and emerging market portfolios. During his 17-year tenure at DFA, Randall also led the research group’s trading support efforts and its management of security data. In this role, he designed portfolio management and trading applications to optimize the rebalancing and management of portfolios. Randall earned his master’s degree in business administration from the UCLA Anderson School of Management and holds a bachelor’s degree in business administration with a concentration in finance from the University of Southern California.

Prior to joining Avantis Investors, Firestein was a senior portfolio manager and vice president at DFA, where he led a team of investment professionals that managed approximately $40 billion in emerging market equity portfolios. He was responsible for strategy and portfolio oversight, implementation, and performance analysis. Firestein started his investment career at DFA in 2005 as a trading assistant supporting the international equity desk after graduating from Tulane University with a bachelor’s degree of science in management and finance. 

Ong also served as a senior portfolio manager and vice president at DFA for 14 years. Ong’s responsibilities spanned across managing international developed and emerging markets equity strategies, leading the emerging markets desk, and engaging with clients. Prior to that, he was an account manager at Metropolitan West Asset Management and a structure analyst at Pacific Investment Management Company. Ong is a CFA charterholder and earned a bachelor’s degree in economics from the University of California and an earned his master’s degree in finance and accounting from the University of Chicago Booth School of Business.

Transamerica Lowers Multiple Investment Fund Fees

Transamerica has reduced its fees for multiple investment funds, effective August 1 and August 2.

Fees were reduced by up to 13 basis points for certain classes of the following investments, representing more than $11.4 billion in assets as of June 30: the Transamerica Short-Term Bond; Transamerica Large Cap Value; Transamerica Intermediate Muni; Transamerica Unconstrained Bond; Transamerica U.S. Growth (effective August 2); Transamerica WMC U.S. Growth VP (effective August 2); and Transamerica Aegon U.S. Government Securities VP.

“At Transamerica, we strive to provide strong investment returns and competitive fees. Today’s announcement illustrates that commitment to our mutual fund, variable annuity, and retirement plan customers,” says Marijn Smit, head of Transamerica Asset Management, Inc.

Transamerica Asset Management, Inc. advises 69 mutual funds, 58 underlying funds for its variable annuity and variable life products, and five DeltaShares exchange-traded funds (ETFs).

Sun Life Financial Announces First Sustainability Bond Issuance

Sun Life Financial Inc. will issue $750 million dollars’ worth of principal amount in Canada, of Series 2019-1 Subordinated Unsecured 2.38% Fixed/Floating Debentures. The offering is expected to close on August 13.

The Debentures will represent Sun Life’s inaugural sustainability bond in Canada and marks the first issuance of a sustainability bond by a life insurance company globally.

In March 2019, Sun Life published its Sustainability Bond Framework, outlining its criteria for the bonds. Distinguishing them from green bonds, Sun Life’s bond and its Sustainability Bond Framework include criteria for both green and social assets. Potentially eligible social investments focus on access to essential services, facilities and equipment that contribute to the long-term health of communities while delivering excess returns to investors, such as infrastructure investments for hospitals or childcare centers. Sun Life’s Sustainability Bond Framework and an independent second party opinion by Sustainalytics on the framework’s alignment with the International Capital Markets Association’s Sustainability Bond Guidelines are available publically on Sun Life’s Investor Relations website. 

“We’re proud to be the first life insurance company globally to issue a sustainability bond. At Sun Life, our purpose is to help our clients achieve lifetime financial security and live healthier lives. This issuance demonstrates our commitment to embed sustainability into our business while contributing positively to society and advancing technologies that enable a healthier future,” says Melissa Kennedy, executive vice president, chief legal officer and executive sponsor of Sustainability, Sun Life. “The financial market plays a key role in the transition to sustainable practices and we’re pleased to broaden the opportunities for sustainable investments in Canada.”

Mesirow Financial Issues U.S. Small Cap Suitability Vehicle

Mesirow Financial has released its Small Cap Value Sustainability Fund. This vehicle capitalizes on the firm’s U.S. Small Cap sustainable investment strategy while addressing the increasing desire of institutional, corporate and individual investors to emphasize responsible investing within well-diversified portfolios.

“With this strategy, we link environmental, social and governance [ESG] factors with our fundamental assessment of macro, sector and company-specific trends,” notes Kathryn Vorisek, senior managing director and head of Equity Management at Mesirow Financial. “We believe that actively incorporating well-defined ESG factors can offer attractive investment potential—and a lower overall portfolio risk profile—while driving positive environmental and societal outcomes.”

“Social responsibility has been a core value of Mesirow Financial since its founding in 1937,” remarks Dominick Mondi, president and CEO of Mesirow Financial. “For decades, we have served as a catalyst for positive change in our communities, and so it is a natural extension to incorporate environmentally and socially sound principles as we design investment solutions for our clients.”

Going forward, the firm says it will continue to seek positive impact through active engagement with companies and further integration of ESG elements into a growing line-up of investment strategies and solutions that are good for society and good for investors.

Data and Research August 8, 2019

Case Studies Suggest Move From Public Pensions Hurts Taxpayers

Experiences of four states that moved from traditional defined benefit (DB) plans to cash balance or defined contribution (DC) plans show it did not address existing pension underfunding and increased costs for these states.

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A new series of case studies finds that states that shifted new employees from defined benefit pensions to defined contribution or cash balance plans experienced increased costs for taxpayers, without major improvements in funding.

The research, published by the National Institute on Retirement Security (NIRS), also indicates that the move away from pensions cuts employees’ retirement security and that employers may face increasing challenges hiring and retaining staff to deliver public services.

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The research looked at four states that closed their pension plans in favor of alternative plan designs: Alaska, Kentucky, Michigan and West Virginia.

According to the study report, “Enduring Challenges: Examining the Experiences of States that Closed Pension Plans,” in Alaska, closing the pension plans has not helped the state manage the existing unfunded liability. Despite a $3 billion infusion of the state’s financial resources, the combined unfunded liability for pension benefits was higher in 2017 than it was in 2005. Alaska has managed to improve the funded status of both its plans modestly after increasing its commitment to funding, yet the unfunded actuarial accrued liability for pension benefits has increased in the pension plans since 2005. And, many workers face a retirement with no Social Security or pension.

In Kentucky, the legislature enacted a new tier of benefits for plans in the Kentucky Retirement System (KRS). Public employees hired since January 1, 2014, participate in a cash balance hybrid plan instead of the pension plan. This move was positioned as a way to improve KRS funding. One of the KRS plans (KERS Non-Hazardous) was funded in fiscal year 2004 at 85.1%. By fiscal year 2018, the funded status was down to 12.88%.

“What’s important to understand is that switching away from pensions starves the plan of employee contributions while the liabilities remain. This can reduce the economic efficiencies of a pension system as the number of retirees grows compared to the number of employees paying in. Ultimately, taxpayers are left with the bill,” explains Dan Doonan, NIRS executive director and report co-author.

In Michigan, the State Employees’ Retirement System (SERS) pension plan has been closed for more than 22 years with all new-hires participating in a defined contribution (DC) plan. When the SERS pension plan closed in 1997, the plan was actually overfunded with 109% of assets. As of September 30, 2017, the plan was only 66.5% funded and had an unfunded liability of $6 billion. And, the system now must be managed with six retirees per worker.

In West Virginia, the Teachers’ Retirement System (TRS) pension plan was closed in 1991, placing new teachers in a DC plan. With teachers facing low retirement account balances, the state re-opened the pension after calculating that it could provide equivalent benefits at half the cost of the DC plan. When West Virginia reopened the pension plan in 2005, the funded status of the plan was at 25%. The state has made steady progress improving the funded status with disciplined contributions. By 2008, the plan improved its funded status to 50%. In 2018, the plan was 70% funded.

Each analysis examines the key issues and the impact of the plan change over time. Specific areas include: the impact on the overall demographics of the system membership; changes in the cost of providing benefits under the plan; the percent of the actuarially determined employer contribution made by the state and other public employers each year; the effect on the retirement security of workers impacted by the change; and the impact on the overall funding level of the plan over time. To the extent possible, the case studies also examine subsequent action taken by policymakers to address the results of the plan changes.

Key findings from the study show costs for these states increased after closing the pension plan, and workforce challenges are emerging as a result of the retirement benefit changes. Alaska is experiencing increased difficulties recruiting and retaining public employees since the pension plans were closed to new hires.

The NIRS has scheduled a webinar for Tuesday, August 13, at 2:00 PM ET to review the findings. Registration is here.

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