Deals and People December 23, 2014

John Hancock Acquires New York Life Retirement Business

Acquisition of New York Life’s RPS business accelerates John Hancock’s expansion into the mid-case and large-case retirement plan markets.
Reported by

Manulife Financial Corporation announced that its U.S. Division, John Hancock Financial, and New York Life have entered into an agreement under which John Hancock will acquire New York Life’s Retirement Plan Services (RPS) business.

The acquisition will increase John Hancock’s RPS assets under administration by approximately 60%, accelerate its expansion into the mid-case to large-case private sector retirement plan markets, and add both scale and expertise to John Hancock in a strategically significant line of business, the company said.

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The resulting combined RPS businesses will consist of approximately $135 billion in assets under administration, 55,000 retirement plans and 2.5 million plan participants. The firm says the combined business will create a top-15 provider of retirement plan services in the mid-case plan market. John Hancock RPS, a provider to small plans, ranked fourth by total recordkeeping plans in PLANSPONSOR’s Recordkeeping Survey.

Peter Gordon, SVP and president of John Hancock RPS, told PLANSPONSOR, the business will be almost exclusively private sector retirement plans—anything from start-ups to very large plans in excess of $1 billion in assets. The business will include private-sector small to large defined contribution (DC) plans, defined benefit (DB) plans, as well as Taft-Hartley plans. They are all adviser-distributed, he says.

According to Gordon, both companies’ RPS business locations, service teams, systems and relationships will remain in place to support clients. As part of the transaction, John Hancock expects to offer all New York Life RPS staff a position with John Hancock RPS.

One reason every employee with New York Life RPS is being offered job with John Hancock is there will be no conversion of recordkeeping systems. “Clients of both companies will see business as usual, other than branding over time,” Gordon says.

He explains that the deal reflects two companies viewing the same business in two ways. “We are very interested in retirement plans and wealth management, so we want to expand our RPS business as a way to fulfill our strategic goals. New York Life has concluded they want to focus on their core insurance and wealth management business.” Gordon notes that strategic goals evolving and going in different directions has been happening more often among companies in the retirement plan industry, and he says he thinks this trend will continue.

It was also announced that New York Life has agreed to assume, on a reinsurance basis, 60% of certain John Hancock life insurance policies. The reinsurance agreement with John Hancock is part of New York Life’s strategy to grow its core book of individual life insurance business. “Upon closing, New York Life will be focused on a select group of complementary businesses: life insurance and annuities, which are core to our mission,” said Ted Mathas, chairman and CEO of New York Life.

Both transactions are expected to close in the first half of 2015.

Investing December 23, 2014

Institutional Investors Poised to Increase Global Allocations

Given relatively expensive domestic equity market valuations and historically low developed market interest rates, institutional investors are increasingly looking for return outside the United States.
Reported by

A new analysis from Cerulli Associates finds equity markets have rallied since the recent financial crisis, helped in part by quantitative easing and monetary policy actions by central banks worldwide.

Asset prices have responded and risen significantly across many markets, Cerulli says. Consequently, expected returns across domestic asset classes appear to be low, given relatively expensive equity market valuations and historically low developed market interest rates. In response, Cerulli finds advisers and investment consultants are looking globally over the next one to two years for most investor types, including retirement plans.

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Cerulli suggests emerging and frontier markets are among the least efficient markets and are built around the most dynamic and fastest-growing economies worldwide. This presents a strong opportunity for investors in both fixed-income and equity markets, Cerulli says. As such, institutions are including these assets in their portfolios as a source of growth, income, and diversification.

According to Cerulli, strong anticipated growth in these regions is supported by favorable demographics of an emergent middle class that should drive demand for consumer goods. As these economies develop to be more similar to western cultures, Cerulli expects a move away from export dependence towards a consumer market will likely occur.

Cerulli expects fund providers and advisers to work to step up corporate defined benefit (DB) pension allocations to less efficient non-U.S. fixed-income markets, including emerging markets. More than half (56%) said they anticipate boosting allocations to international fixed-income positions. Furthermore, while 38% of consultants expect to increase corporate DB plans’ emerging market equity and debt allocations, exactly one-quarter will likely decrease emerging market equity exposure, and 13% plan to decrease emerging market debt allocations, Cerulli says.

On the public DB side, consultants expect a similar plan to ratchet up allocations to emerging market debt and equity, especially as DB pensions continue to struggle to achieve actuarial returns between 7.5% and 8%.

Over the next one to two years, 53% of investment consultants said they are likely to increase public DB plans’ exposure to emerging market equities, and 60% expect to boost allocation to emerging market debt. The trend toward increased global portfolio allocations also held true for consultants’ Taft-Hartley clients, Cerulli says.

Overall, half of investment consultant respondents (50%) indicated that they plan on boosting their clients’ exposure to emerging market debt, and 42% said they anticipate increasing their clients’ international fixed-income allocations.

As predicted, Cerulli says asset allocations and average anticipated shifts vary across client segments based on their divergent needs and objectives. Moreover, within each client type, investors are not the same. For example, while some pensions are looking to immunize their portfolios, others are looking to increase their funding ratios.

Information on how to obtain Cerulli research reports is available here.

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