Pensions & Investments: Outsourced CIO assets from pension funds slipped over the past year. Here's why managers aren't concerned.
NEPC’s Scott Perry was recently featured the Pensions & Investments OCIO Special Report for his take on the current state of pension funds. View the article on the Pensions & Investments site here.
Institutional demand for outsourced CIO services motored ahead in 2023, even as the baton in the race to drive industry growth showed signs of passing from defined benefit pools to endowments, foundations and defined contribution plans.
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NEPC’s 73% gain in worldwide institutional outsourced AUM to $106.6 billion for the year through March 31 was powered by a combination of new DB and DC clients, said Scott Perry, a partner and head of portfolio strategy with the Boston-based consult and investment house.
“We had a number of large defined contribution programs that engaged us for OCIO mandates … and then there were a lot of advisory clients that we had relationships with that asked us to play a bigger role in their investment programs,” he noted.
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Pensions & Investments: IBM's move sparks hope for defined benefit bounce back
NEPC’s own Scott Perry was recently featured in a portion of Pensions & Investments OCIO Special Report, this time featuring his commentary on IBM. View the article on the Pensions & Investments site here.
Outsourced CIOs reporting a growing number of pension risk transfers by defined benefit clients they’ve guided to full funding could be forgiven for looking at the DB portion of their businesses as a wasting asset.
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IBM’s example has “caught the eye of other pension plan decision-makers,” agreed Scott Perry, a partner and head of portfolio strategy with Boston-based consultant and investment house NEPC, leaving some considering a different way forward now that could shift the balance between DC and DB “a bit.”
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That desire to attract and retain employees — effectively the “original intent” of offering pension plans in the first place — is once again boosting corporate plan sponsor interest in retaining their pension plans, agreed NEPC’s Perry.
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Pensions & Investments: Could OCIO Reporting Standards Bring Light to Opaque Universe?
NEPC’s Head of Portfolio Strategy, Scott Perry, was recently featured the Pensions & Investments OCIO Special Report for his insights on OCIO reporting standards. View the article on the Pensions & Investments site here.
Efforts underway now to come up with outsourced CIO reporting standards could be one means of making what remains a crowded, opaque market segment easier for institutional clients to navigate.
Or not, depending on whom you ask.
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Scott Perry, a partner with Boston-based NEPC, counts himself among the optimists, holding out hope that an ongoing CFA Institute exercise charged with creating rules of the road for OCIO reporting could lay the groundwork for more consistent reporting of OCIO track records and performance over the coming six to 12 months.
He said coming guidelines — “an important next step for the rapidly expanding OCIO solutions market” — should help stakeholders make more informed decisions about the options available to them.
“Historically, it has been hard for stakeholders to do an apples-to-apples comparison of OCIO track records,” Perry noted.
The coming guidelines, while not perfect, will move in the direction of making such comparisons possible – considerable progress for a market segment that retains “a little bit of the Wild West” about it, he said.
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“It’s highly competitive, with a lot of players and still limited consolidation,” noted NEPC’s Perry. Meanwhile, there are three major categories of OCIOs — those linked to asset managers, investment consulting firms and endowment boutiques, he said.
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Bloomberg: As Tide Goes Out on Private Credit, Smaller Firms Look Exposed
NEPC’s Head of Private Debt, Oliver Fadly, speaks on private credit and how there’s less room for smaller firms as the money goes down. View the article on Bloomberg’s site here.
The clubby world of private credit seems to be running out of space for the little guy.
As the rush of money into Wall Street’s hottest market slows, life is getting especially hard for firms that already oversee a smaller amount of capital.
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“An LP looking to put $400 million to work has already cut out all of the smaller managers,” said Oliver Fadly, head of private debt at NEPC, a consultant to limited partners. “Big check investors that have already allocated to larger firms are now looking at the second wave of mega-cap lenders, not newer, smaller ones.”
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“The larger managers attract more capital as they have more infrastructure to protect their investments if things go sideways,” said Fadly at NEPC. “Smaller managers might only have one restructuring person that doesn’t have the scar tissue from prior cycles.”
Pensions & Investments: DEI Targets Within Reach for NEPC Despite Stronger Political Headwinds
KC Connors, Partner & NEPC’s Chief Consulting Officer, was featured in a recent Pensions & Investments article to discuss NEPC’s fourth annual DEI Progress Report. View the article on the Pensions & Investments site here.
NEPC saw continued progress in 2023 in making diversity, equity and inclusion work for its clients, despite an uptick in political headwinds, with goals set years before within reach and consideration of next steps underway, said KC Connors, a Minneapolis-based partner and member of the consulting/OCIO firm’s diverse manager committee.
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While acknowledging DEI’s recent emergence as a political football, Connors said “despite the winds shifting in this area,” NEPC remains committed to working toward greater diversity, equity and inclusion in the interests of its clients.
At the end of the day, NEPC remains convinced that reaching out to the broadest set of managers — in pursuit of “undiscovered gems” — and overcoming potential biases in interacting with them remain key to connecting clients with the best managers out there, Connors said.
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It will be a shame, meanwhile, if political noise results in organizations walking back the commitments they’ve made to encourage greater diversity in the industry, Connors said. “For us, it continues to be just who we are and what we think will actually produce better results.”
“We’ll see how embraced it is but that won’t really change how we’re continuing to move forward on it,” she said.
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PlanAdviser: NEPC Looks at ROI of Managed Account Savings Advice
NEPC’s Defined Contribution Team was featured in an article by PlanAdviser to discuss their latest white paper, The Real ROI: Analyzing Savings in Managed Accounts. View excerpts below or the full article on PlanAdviser’s site here.
Consultancy NEPC’s defined contribution team argued in a white paper released Monday that the return on investment from one-time savings advice for early to mid-career participants in a managed account will not offset the ongoing fees. Instead, the firm advocates for plan sponsors to consider automatic escalation as a way to boost savings outcomes for participants.
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The firm undertook the paper, in part, as it works with plan sponsor clients who are at times “getting pushed to add this feature,” says Mikaylee O’Connor, principal, head of defined contribution solutions at NEPC.
“What we’ve seen is that plan sponsors have over time added this service without necessarily going through the full due diligence process,” she says. “As part of our fiduciary duty in working with clients, we’ve spent time over the last number of years looking into managed accounts and really trying to understand the value add.”
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O’Connor agrees that plan sponsors often want to offer more personalized solutions to participants. But she urged them to think carefully about how best to personalize.
“I think for some who are approaching retirement who have multiple pools of money and want to think about their overall financial picture, they may be a good candidate for some sort of personalized service,” she said. “But for the vast majority of people, I just don’t think that is going to happen; and we see that with managed accounts, people are not engaging with the service as they should be.”
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“The reason for the negative ROI is that the managed account fee was based on the participant’s DC assets,” NEPC’s team writes. “As the participant’s assets grew faster than their salary, the incremental year-over-year rise in fees was greater than the incremental year-over-year increase in the participant’s salary, and therefore savings. This was especially true for participants younger than age 40 whose managed account investment allocation would have high exposure to equities, similar to a target-date fund.”
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O’Connor went on to say that, in such a model, a managed account could offer a more a la carte service, in which a participant could opt-in for additional services.
“It can be on the participant to say I’m willing to pay something additional, which is a much better model than having everyone pay the higher fee,” she says.
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“A plan sponsor could help almost their entire population by increasing their savings rates for free by just implementing auto-escalation,” O’Connor says. “You’re really putting people on a good path without them paying for it.”
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NEPC's 2023 DEI Progress Report: Redefining Diversity in Investing
BOSTON–(BUSINESS WIRE)– NEPC, a leading research-driven investment consultant and OCIO provider with $1.7 trillion1 in assets under advisement, today published its fourth annual Diversity, Equity, and Inclusion (DEI) Progress Report. The report aims to uncover the investment-oriented benefits of diversity, supporting NEPC’s goal of establishing itself as a pioneer in Diversity, Equity, and Inclusion (DEI)
This year’s report shows the firm’s continued progress toward NEPC’s Diverse Manager Policy goals, which were initially set in 2019. Most notably, the firm released a new DEI rating system in 2023, modeled partially after its successful ESG ratings. The revamped DEI ratings extend beyond measures of ownership diversity to consider DEI standards for the workplace, portfolio management, governance, policies, and community impact.
“Diversity is no easy subject to broach. We believe that the sincerity and frequency of debates on the matter proves the importance of diversity among our clients. We cannot ignore the broad calls for our industry to pursue investing in a responsible way,” said KC Connors, Partner, Chief Consulting Officer. “We’ve used our learnings over the past four years to implement strategies that produce real results, as evidenced by the success of our DEI ratings and Explorer programs.”
NEPC’s 2023 DEI Progress Report provides insight into the firm’s DEI initiatives from a marketplace perspective. Listed below are highlights from this year’s report:
Client Exposure to Diverse Strategies
- 58% of NEPC clients use Diverse Manager(s)
- $45.4B of client’s assets with Diverse Firms
- 218 client strategies managed by Diverse Firms
Increasing Diversity in NEPC’s Recommended Strategies
The firm continued expanding the Explorer Program, which has been the cornerstone of NEPC’s DEI efforts for several years. At the 2023 Explorer Program Pre-Conference event, an event held prior to NEPC’s Investment Conference, NEPC clients were able to make direct connections and introductions to diverse-owned investment managers that are part of NEPC’s Explorer Program.
- In 2023, NEPC once again increased the number of diverse-owned managers on its Focus Placement List, positioning the firm to reach its goal of 15% diverse manager representation by the summer of 2024.
- NEPC conducted 284 interactions with Diverse Management firms in 2023, including both manager meetings and emerging manager conferences.
“Of course, the conversation does not stop here,” said Connors. “The road to diversity in investing is not linear. We see 2024, and every subsequent year, as a year for evaluation and improvement. DEI is integral to NEPC, and we are constantly exploring new ways to make data-driven cases for investing with diverse managers.”
To download the full results of NEPC’s 2023 DEI Progress Report, click here.
ABOUT NEPC, LLC
NEPC is an independent investment consultant, private wealth advisor, and OCIO provider serving over 400 retainer clients and $1.6 trillion in total assets. Combining a proprietary research team dedicated to the long-term challenges facing investors with our unique client-centric model, NEPC builds forward-looking investment portfolios for institutional investors and ultra-high-net-worth individuals and families. To learn more about NEPC, visit nepc.com.
Contact:
Emma Rayder
[email protected]
Bloomberg TV: PE Firms Gorge on Debt for a Risky Payoff to Investors
Bloomberg: Private Equity Won’t Stop Gorging on Debt to Pay Investors
NEPC’s Sarah Samuels provides her thoughts around private equity and investors in spaces such as education and healthcare, showcasing that private equity fees may not be necessary for these clients. View the article on Bloomberg’s site here.
Private equity investors are clamoring for their payouts. A risky approach to meeting their demands is setting records — and getting more popular.
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“Private equity portfolios do not exist in a vacuum and general partners may not appreciate the puzzle that a college is trying to solve for its students or a hospital is for its patients,” said Sarah Samuels, head of investment manager research at NEPC, a limited partner consulting firm. “We don’t believe that private equity fees are really appropriate for those creating returns solely from leverage and financial engineering. We look for GPs who create value through earnings growth and multiple expansion.”
In Conversation with Julie Segal: How Much Longer Can Companies Go on Paying 12 to 14 percent on Debt?
NEPC’s Oliver Fadly spoke with Julie Segal on her podcast “In Conversation with Julia Segal” and they discussed the state of private credit after the immense changes we’ve seen over the last 15 years. Listen to the podcast on Institutional Investor here.