Deals and People September 25, 2020

Retirement Industry People Moves

Schroders selects fixed income head and CalPERS names private equity investment director.

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Art by Subin Yang
Art by Subin Yang
Art by Subin Yang

Schroders Selects Fixed Income Head

Schroders has named Andy Chorlton as head of fixed income. 

Effective October 1, Chorlton will assume the role, which was previously held by Philippe Lespinard for more than a decade. This succession plan will take effect from October 1 through the end of March 2021. Chorlton will report to Charles Prideaux, global head of investment, and will join the Schroders Group Management Committee.

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Most recently, Chorlton was Schroders’ head of U.S. multi-sector and fixed income solutions, having spent the past 20 years specializing in fixed income investing. He joined Schroders’ New York office in 2013 following the acquisition of STW Fixed Income in the U.S. and returned to the UK in August 2019.

New York-based Lisa Hornby, fixed income fund manager, will take over Andy’s responsibilities as head of U.S. multi-sector fixed income. She will lead the team from New York and continue to report to Andy.

“Andy will build on the strength of Schroders’ fixed income investment platform, which delivers leading investment research and high alpha flagship strategies alongside investment solutions designed to meet clients’ increasingly complex investment needs,” comments Prideaux. “Andy’s fixed income investment experience meant he was the standout candidate to succeed Philippe and we are convinced he will continue to drive our focus on client performance as well as the growth of the platform.”

CalPERS Names Private Equity Investment Director

The California Public Employees’ Retirement System (CalPERS) has announced that Yup Kim will join the pension fund as its new investment director in private equity.

Kim will help lead the CalPERS private equity program, engaging across all functions, including strategy, team management and investment activities for primary, secondary and co-investment opportunities globally. He comes to CalPERS from the Alaska Permanent Fund Corp. (APFC), where he served as senior portfolio manager for private equity and special opportunities.

Kim will begin as investment director on September 28. He will report to Greg Ruiz, managing investment director of private equity.

“Yup has been a thought leader in the industry with a unique combination of strategic insight, investing acumen and managerial experience,” Ruiz says. “The evolution of Alaska Permanent’s private equity program stands out for its innovation, thoughtfulness and investment returns. I look forward to partnering with Yup in the years to come as we continue to strengthen and evolve our private equity program.”

Kim joined the Alaska Permanent Fund in 2016, and, before that, held roles at Deutsche Bank Private Equity, Performance Equity, Silver Point Capital and Citigroup. He has a bachelor’s degree in economics from Yale University.

“CalPERS’ private equity program has tremendous potential to generate long-term outperformance across the private markets spectrum,” Kim says. “There are incredible, unearthed competitive advantages at CalPERS that we’ll focus on cultivating and compounding over time to deliver strong results for all of our beneficiaries. I am thrilled to have the opportunity to contribute to a world-class private equity program at CalPERS.”

Administration September 25, 2020

PSNC 2020: Creating Income Streams for Participants

Panelists reviewed different lifetime income stream selections and important disclosures to note under the SECURE Act.

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Experts reviewed lifetime income options in defined contribution (DC) plans on the fourth day of the virtual 2020 PLANSPONSOR National Conference, noting that, while popular, annuity features are not the only kind of guaranteed lifetime income stream.

Panelists began by discussing the Setting Every Community Up for Retirement Enhancement (SECURE) Act and its annuity safe-harbor feature. While the SECURE Act requires employers to hold a thorough analysis on annuity features, many employers are concerned about portability, said John Doyle, senior retirement strategist at Capital Group/American Funds. Most employers don’t want to be locked into a recordkeeper, he explained. “There’s concern that when the next new shiny toy comes along, they’ll have to freeze the one they have and then move on,” he said. “This is why sponsors are saying, ‘Maybe we should wait until the solutions are better.’”

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Additionally, Doyle said he is seeing more confusion when it comes to the differences between retirement and lifetime income. The SECURE Act addresses lifetime income as a secured guarantee of income, whether before retirement or during, he noted. Retirement income solutions, however, involve an array of solutions participants can use to create an income stream during their retirement years.

Joanne Jacobson, of counsel at Ivins, Phillips & Barker, described the difference between the two. “When I think of lifetime income, I think of guaranteed income. When I think of retirement distributions, it includes every facet of retirement features,” she said.

Many employers are interested in adding lifetime income features to their plans, especially as more keep their former participants/now retirees in the plan. One of the first actions a plan sponsor can take when adding a DC lifetime income option is ensuring the plan is retiree-friendly, Doyle said. Allow for ad-hoc and partial withdrawals, he added, so there are multiple ways participants can reach their money without incorporating a rollover. Because many recordkeepers will charge additional fees for an ad-hoc or systematic withdrawal, employers will have to work with their recordkeeper to ensure this design does not increase plan fees for the participant, Doyle explained.

The next step is to look at the investment options for the plan. More plan sponsors are considering a tiered lineup of options for participants that better fits different participant demographics, and many are adding an additional retirement tier. These selections are tailored to generate or deliver income streams to the participant, while being flexible. “The diversity of objectives is significant as people move to retirement,” Doyle said. “When you move into retirement, objectives vary significantly. It’s important to offer multiple solutions so that participants can fit these to specific investment portfolios.”

Jacobson agreed, adding that more variety equals better outcomes. “Each participant has different needs and desires, and communication is key so that individuals can make a reasonable choice within those options,” she said.

Along with tier options, Nick Nefouse, managing director, co-head of LifePath and head of investment strategy at BlackRock’s Retirement Group, mentioned that new, innovative tools, along with target-date funds (TDFs), will emerge as products that create lifetime income streams. For example, if a plan sponsor wants to offer systematic withdrawals, there are tools that offer a 20- or 30-year payout period. Depending on how paternalistic the plan is and how paternalistic it wants to be, TDFs may be a viable option for some. As more funds embed lifetime income, this may be one of the best options for most people, Nefouse said.

Aside from products, one-on-one communication, education about these products and defaulting mechanisms are all crucial, said Jacobson. Automatizing participants into an annuity-provided TDF or qualified default investment alternative (QDIA) is key to savings and distribution, she added.

The SECURE Act’s required disclosure provision is also important for employers and sponsors as they plan their strategies. Under the rule, employers will have to issue a disclosure on an annual basis that converts an account balance to a lifetime income stream. “The intention is that this would spur participants to save more money if they realize how far they would or would not grow,” said Jacobson.

However, she noted, a flip side to the rule is that it may turn participants off. If these notices are distributed to younger participants who have not accumulated as much savings, some may feel overwhelmed and choose to give up on saving. This is why it’s important to also have pieces of education along with these notices to emphasize that income will build as a participant progresses in his or her career. “Plan sponsors can provide additional information to these individuals on what they’re doing and what additional things they can be doing,” Jacobson said.

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