Products December 10, 2020

Investment Product and Service Launches

Nationwide announces new suite of in-plan annuities; SC Ventures and Northern Trust to launch Zodia Custody; Wilmington Trust and Neuberger Berman collaborate on CIT distribution; and more.

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Art by Jackson Epstein

Nationwide Announces New Suite of In-Plan Annuities

Nationwide has introduced Nationwide Indexed Principal Protection, an in-plan group fixed indexed annuity, the first of a suite of in-plan annuities that are set to be launched over the course of 2021.

This new investment option can provide the potential for growth based on the return of a market index while also providing principal protection. Additionally, there are no investment minimums for participants wanting to allocate to this new option.

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“Participants, especially those nearing retirement, are looking for ways to protect their investments given recent market volatility. At the same time, they realize they still need growth in order to outpace inflation,” says Eric Stevenson, president of Nationwide Retirement Plans. “Nationwide Indexed Principal Protection is one of the first fixed indexed annuities to be offered as an in-plan annuity that can help participants address both of these needs.” 

Nationwide Indexed Principal Protection will provide retirement plan participants with:

  • Upside potential: Participants will have upside potential, up to a cap, based on the performance of the S&P 500 Daily Risk Control 5% USD Excess Return Index. Nationwide Indexed Principal Protection sets an annual cap rate for each index account every calendar quarter. Offering a new index account with a one-year term four times a year allows retirement plan participants to diversify market entry timing.
  • Principal protection: Participants will not lose their principal even if the market index goes down, due to the floor of 0%. When the corresponding market index return is negative over the one-year term, the account loses nothing since the principal is protected.
  • Liquidity: Participants can exchange out of the Nationwide Indexed Principal Protection investment option at any time without incurring a contingent deferred sales charge (CDSC). In order to receive interest earnings from an index account, participants must not exchange out before the term ends.

In addition to Nationwide Indexed Principal Protection, in 2021 Nationwide is preparing to introduce several in-plan lifetime income options that pair income guarantees with target-date funds (TDFs), all designed to be QDIA (qualified default investment alternative) compliant.

SC Ventures and Northern Trust to Launch Zodia Custody

SC Ventures and Northern Trust have entered into an agreement to launch Zodia Custody, an institutional-grade custody solution for cryptocurrencies.

Zodia is designed to enable institutions to invest in the emerging cryptocurrency assets that are transforming how financial markets operate, including transaction and settlement activities. Under the agreement, which is subject to registration with the UK Financial Conduct Authority (FCA), all applicable regulatory filings and customary closing conditions, Zodia is expected to begin operations in London in 2021.

At launch, pending regulatory approval, Zodia will provide custody services for the most-traded cryptocurrency assets—Bitcoin and Ethereum, followed by XRP, Litecoin and Bitcoin Cash—which represent the majority of client demands and activity, accounting for approximately 80% of the total assets traded on the top cryptocurrency exchanges.

“Zodia was established to address the need for a cryptocurrency custodian that truly understands custody,” says Maxime De Guillebon, chief executive officer of Zodia. “We combine the risk management, compliance, governance and security approach of a regulated financial institution with the cutting-edge innovation of crypto asset and key management technologies. By doing so, we enable operational efficiency and speed of transaction without compromising on security or reliability.”

“The launch of Zodia demonstrates our commitment to rewiring the DNA in banking,” says Alex Manson of SC Ventures. “Drawing on Standard Chartered’s heritage of providing custody services to institutional clients for 160 years, Zodia’s mission is to be a ‘force for good’ by lifting industry standards for digital assets in a sustainable, safe and responsible way.”

“The introduction of digital custody backed by the know-how and experience of global banks is a breakthrough in the evolution and support of institutional cryptocurrency markets,” says Pete Cherecwich, president, corporate and institutional Services, Northern Trust. “Zodia’s robust capabilities will make it possible for institutional asset owners, family offices and asset managers to invest in a range of cryptocurrencies as interest continues to grow in these emerging and innovative financial instruments.”

Wilmington Trust and Neuberger Berman Collaborate on CIT Distribution

Wilmington Trust and Neuberger Berman have announced their collaboration to distribute collective investment trusts (CITs) for defined contribution (DC) clients via specialty retirement adviser channels.
 
“Wilmington Trust is committed to working with prominent asset managers such as Neuberger Berman to efficiently deliver CIT solutions to the defined contribution market,” says Rob Barnett, group vice president and head of retirement distribution, Wilmington Trust. “Despite the difficulties of working through a global pandemic, we are proud to have established a new strategic alliance to help advisers, consultants, plan sponsors and participants make better-informed decisions about their retirement plan portfolios and meet their long-term goals.”
 
“Accessing the Wilmington Trust platform enables us to deepen our connections with specialty retirement advisers, empowering them to drive greater awareness of CITs and why they should be considered for appropriate retirement plans,” says Michelle Rappa, managing director and client adviser, Neuberger Berman. “We’re excited to be a part of an ecosystem that will enable us to broaden our reach in this market and offer expanded access to Neuberger Berman’s strategies.”
 
Through this alliance, plan advisers may also benefit from greater operational efficiencies so they can more effectively work across their entire book of business. With no minimum investment requirements, the Wilmington Trust platform enables advisers to access various Neuberger Berman strategies for retirement plans of any size. Neuberger Berman has a wide breath of investment solutions, many of which are now more accessible via a CIT structure to address the unique needs of plan clients.

SimCorp Partners with IntelliBonds to Offer Portfolio Management

 
SimCorp will collaborate with artificial intelligence (AI) fintech IntelliBonds to deliver clients access to AI innovation, portfolio construction and optimization for fixed income portfolios.

The partnership is said to bolster buy-side firms with improved productivity and portfolio returns, using cloud-based, AI-augmented workflows.

In recent years, many buy-side institutions have sought to tackle portfolio construction and optimization, via a combination of third-party and proprietary portfolio management tools, in a bid to find elusive alpha. However, this has led to a minefield of operational woes, from manual data reconciliation to error prone upgrades and increased costs. To eliminate such pain points in the investment lifecycle, SimCorp is pre-integrating a choice of partner-based offerings, such as IntelliBonds, into its core platform, driving additional value to the investment process.

Built by bond professionals to meet the specific needs of portfolio managers and credit analysts, IntelliBonds’ Portfolio Assist AI-augmented platform offers an approach to the current fixed income business model. Delivering optimized configuration, it adapts to clients’ specific investment strategies, with the added benefit of saving 20% to 30% on running costs. Using machine learning, with virtual AI assistants that test and monitor investment strategies, the platform incorporates analytics to boost alpha generation, with the creation of portfolio-specific trade ideas and risk warnings. 

Through a set of application programming interfaces (APIs) and secure cloud-based connectivity from SimCorp, IntelliBonds will deliver SimCorp clients with integrated workflows and processes, with a real-time dashboard of current holdings, and security and price master data for portfolio construction, rebalancing and optimization. This will be integrated directly into front office data flows, such as analytics, pre-trade compliance and order execution within SimCorp Dimension. 

Anders Kirkeby, head of open innovation, SimCorp comments, “We’re pleased to welcome IntelliBonds to the SimCorp ecosystem and offer our clients a consolidated front office suite. The partnership is particularly timely given the lean margins many buy-side firms are running on, following challenging conditions this year. It is also significant for an industry largely operating remotely, and where internal innovation projects may be put on the backburner. Through partnerships, like IntelliBonds, SimCorp is able to deliver its clients integrated access to external innovation, together with sound advice on the best partner-fit for their business. This not only creates an opportunity to boost alpha, but also takes away the cost and risk of undertaking the research and procurement themselves, and that is an attractive proposition for many buy-side firms today.”

Igor Tesinsky, founder and CEO, IntelliBonds adds, “It’s great to form a partnership with such a well-known brand in the industry. We strongly believe that partnerships with established market players are the fastest way to deliver superior technology to market participants, in the current challenging market conditions. Margin erosion in the industry can’t be stopped without technological transformation, and IntelliBonds aims to be at the forefront of it. The impact of COVID-19, the low-yield environment and margin pressures have made internal innovation too risky or costly. To address this, partnerships between established solution providers, like SimCorp and IntelliBonds, can deliver superior technology to asset management clients with minimal risk, at the time when it’s needed most.”

Administration December 10, 2020

DB Funded Status Nearly Back to Level From Beginning of Year

A strong equity market rally in November gave defined benefit plan funded status a boost, but long-duration fixed income also performed well.

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Based on data from the top 100 defined benefit (DB) plans by liability in the S&P 500, Insight Investment estimates their current funded status to be an average 83% as of November 30.

Wilshire Associates estimates that the aggregate funded ratio for U.S. corporate pension plans sponsored by S&P 500 companies increased by 1.3 percentage points month-over-month in November to end the month at 84%. November’s funded ratio resulted from a 6.3 percentage point increase in asset values partially offset by a 4.6 percentage point increase in liability values. Over longer periods, the aggregate funded ratio is estimated to have decreased by 3.1 and 5.4 percentage points year-to-date and over the trailing 12 months, respectively, primarily due to rising liability values.

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“November’s funded ratio increase was primarily driven by double digit U.S. and non-U.S. public equity and real estate monthly returns, with the Wilshire 5000 Total Market Index posting multiple record highs stemming from optimism around a COVID-19 vaccine,” says Ned McGuire, managing director, Wilshire Associates. He notes that November’s funded ratio increase reverses two consecutive monthly declines in funded ratio.

River and Mercantile says an end to uncertainty surrounding the U.S. presidential election and favorable news from multiple COVID-19 vaccine developers, in addition to hope that fiscal stimulus negotiations in Congress are finally gaining momentum, are creating hope for an economic recovery in 2021. This led to extremely strong equity performance in November, both in the U.S. and internationally. Fixed income investments also had positive returns for the month.

For pension plans, the positive asset returns in November will be partially offset by liability increases, according to River and Mercantile’s Monthly Retirement Update. “Pension discount rates took one of their bigger monthly dives for the year, down 0.20% to 0.30%, bringing the total discount rate decline relative to year-end 2019 to approximately 0.70%,” the update says.

“Despite the volatility in equity markets and with interest rates, many plans many be approaching funded status levels similar to those at the beginning of the year,” says Michael Clark, managing director at River and Mercantile.

Brian Donohue, a partner at October Three Consulting, also says the stock market rally in November effectively closed a “hole” in pension finances that emerged in the first quarter, leaving plans in a position similar to where they began the year. Both model plans October Three tracks gained ground last month, with Plan A adding close to 5% and Plan B close to 2% during the month. For the year, Plan A is down less than 1% and Plan B is even. Plan A is a traditional plan (duration 12 at 5.5%) with a 60/40 asset allocation, while Plan B is a largely retired plan (duration 9 at 5.5%) with a 20/80 allocation with a greater emphasis on corporate and long-duration bonds.

According to October Three’s Pension Finance Update, for the year, a diversified stock portfolio is now up more than 14% through November, with tech (Nasdaq) overperforming massively while international markets lag. For the year, a diversified bond portfolio has gained 10% to 13%, with long duration bonds producing the best returns.

The funded status for NEPC’s hypothetical open, or total-return, plan increased 2.6%, driven by a robust performance from equities, according to its Pension Monitor report. The funded status of its frozen, or liability-driven investing (LDI)-focused plan increased 3.8%, as gains from equities and long-duration fixed income offset a relative estimated liability increase. The plan is 80% hedged, as of November 30.

The benefits of investing in long-duration fixed income were also a theme in Northern Trust Asset Management (NTAM)’s estimate of S&P 500 pension funding ratio. “Pension plans invested in long duration bonds have experienced gains to help offset the higher liabilities from the decline in rates,” says Jessica Hart, head of the outsourced chief investment officer (OCIO) retirement practice at NTAM.

NTAM estimates that the average funded ratio of corporate pension plans improved in November from 82.1% to 84.5%. Global equity market returns were up approximately 12.3% during the month. The average discount rate decreased from 2.37% to 2.08% during the month, which led to higher liabilities.

Legal & General Investment Management America (LGIMA) estimates that pension funding ratios increased approximately 2.4% throughout November, with the impact primarily due to strong equity performance outpacing plan liabilities. LGIMA’s calculations indicate the discount rate’s Treasury component decreased 5 basis points (bps), while the credit component tightened 22 basis points, resulting in a net decrease of 27 basis points. Overall, liabilities for the average plan increased approximately 4.5%, while plan assets with a traditional “60/40” asset allocation rose approximately 7.8%, according to its Pension Solutions’ Monitor.

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