PLANSPONSOR - March - April 2023 - 29

30TH ANNIVERSARY | INVESTMENTS
LDI'S
UPS AND
DOWNS
THE liability-driven investing
market has grown significantly
since its inception in the United
Kingdom in 2001. The global
LDI market now accounts for
$3.5 trillion of assets, according
to data from Capital Group.
These strategies typically
employ a combination of securities
and derivatives to create
a " match " between pension
assets and liabilities so that
pensions will be able to fulfill
their long-term obligations. The
approach is meant to provide
a level of predictability for
pension managers.
strategist group manager at Fidelity Investments in Denver.
" When we look at our plan participants now, almost 98% of
them are in or have a target-date fund offered to them. That's a
big shift away from giving people only a menu of funds. "
By the end of 2022, the size of the target-date market, minus
CITs, in the U.S. stood at $1.5 trillion, says data from Simfund, a
platform of ISS Market Intelligence, which, like PLANSPONSOR,
is owned by Institutional Shareholder Services Inc.
Balanced funds provided an early framework for what
would eventually become target-date funds. A balanced mutual
fund is a type of mutual fund that invests in low- to mediumrisk
stocks and bonds. This basic outline paved the way for agebased
investing through lifecycle or target-date funds, which
mix stocks and bonds in one fund and create a glide path for
the investment based on the age and expected risk tolerance of
the investor.
" One of the big things for me when I look back on how
investment menus have evolved is the growth of advice, " says
John James, managing director of Vanguard's institutional
investor group in Philadelphia. " Because of QDIAs and the
availability of advice within target-date funds, we're able to
provide much more information to participants to help them. "
TDF providers typically include some measure of financial
advice for participants, he notes. This can include access to a
financial adviser who can answer basic questions about saving
and investing for retirement.
" Advice used to be walled off-even in the pension space;
it was expensive to get, " James continues. " Now it's widely available
and at low cost; that's huge, and it's not just huge today. It's
going to keep being important into the future because everyone
wants help with their finances. "
Looking Ahead
As the retirement industry continues to develop, many of its
most recent improvements have been aided by technology and
innovations in investment structures.
James notes that Vanguard has taken steps to improve its
online educational platform and is leveraging technology to
What happens first in
the U.K. market often follows
in other jurisdictions, sources
explain. While the U.S. bond
market is more liquid, they say,
investors in U.S.-based LDI
strategies have been monitoring
their exposures in light
of recent volatility.
But the strategy came
under pressure during last
year's market unsteadiness. U.K.
pensions with LDI strategies
faced the worst of it because
bond markets in the countries
composing the U.K. are smaller,
making the impact more intense.
Now, U.K. regulators are calling
for an LDI investment rules
refresh that would limit the use
of leverage in LDI such that, if
liquidity tightens, pensions will
not face knock-on effects from
their derivative positions. -BM
help with advice. " We're trying to lead from the front and use
technology to nudge people and provide education. We're also
seeing more interaction with our call centers. These are tools
that can work together. "
The structure of investment menus has improved within
plans, so it is easier for individuals to compare funds and make
informed choices, he adds. That, too, has been aided by new technologies
that improve the user experience.
To create more access to participant advice, plan sponsors
have also increasingly turned to managed accounts, says
Fidelity's Thompson. Managed accounts provide participants
with a customized, professionally managed retirement portfolio
and advice, if requested, he says. " When I look at the data on
our largest plans, approximately 50% of them offer managed
accounts, and that can be a solution for participants who aren't in
a target-date and are looking for guidance. "
CITs, which typically offer replicas of mutual fund strategies
in a lower-cost wrapper, are also gaining traction with plan
sponsors, which can thereby continue to offer the same investment
strategies with less overhead, Thompson says.
" The retirement industry is doing a lot of work to make it
easier to compare the funds in these wrappers and provide education, "
he says. " The demand for CITs will likely continue to grow
because sponsors can bring costs down. But it will be an [ongoing]
process as everyone gets more comfortable with the structure. "
Target-date funds are changing as well. Some of their newest
innovations include greater customization of the investment glide
path as well as the inclusion of retirement income solutions.
Capital Group's Walton says a conversation has been
growing about finding solutions to help people with the decumulation
phase of retirement. " We focus a lot on getting people
invested and what the menu should be, but until recently we
weren't talking much about helping people understand what
they should do with their savings when they reach retirement, "
she says. " There are tools that can help that are already available,
and I think we're going to see more so that people who
have done the work of saving can have a reliable income when
they retire. " -Bailey McCann
PLANSPONSOR.COM March - April 2023 29
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PLANSPONSOR - March - April 2023

Table of Contents for the Digital Edition of PLANSPONSOR - March - April 2023

INSIGHTS
PARTICIPANT ANALYSIS
RULES & REGULATIONS
UPFRONT
PLAN DESIGN
PARTICIPANTS
INVESTMENTS
PLAN ACCESS
GOVERNANCE
FIDUCIARY FORUM
INSIDE ANGLE
PLAN PROFILE
PLANSPONSOR - March - April 2023 - Cover1
PLANSPONSOR - March - April 2023 - Cover2
PLANSPONSOR - March - April 2023 - 1
PLANSPONSOR - March - April 2023 - INSIGHTS
PLANSPONSOR - March - April 2023 - 3
PLANSPONSOR - March - April 2023 - PARTICIPANT ANALYSIS
PLANSPONSOR - March - April 2023 - 5
PLANSPONSOR - March - April 2023 - RULES & REGULATIONS
PLANSPONSOR - March - April 2023 - 7
PLANSPONSOR - March - April 2023 - UPFRONT
PLANSPONSOR - March - April 2023 - 9
PLANSPONSOR - March - April 2023 - 10
PLANSPONSOR - March - April 2023 - 11
PLANSPONSOR - March - April 2023 - 12
PLANSPONSOR - March - April 2023 - 13
PLANSPONSOR - March - April 2023 - PLAN DESIGN
PLANSPONSOR - March - April 2023 - 15
PLANSPONSOR - March - April 2023 - 16
PLANSPONSOR - March - April 2023 - 17
PLANSPONSOR - March - April 2023 - 18
PLANSPONSOR - March - April 2023 - 19
PLANSPONSOR - March - April 2023 - PARTICIPANTS
PLANSPONSOR - March - April 2023 - 21
PLANSPONSOR - March - April 2023 - 22
PLANSPONSOR - March - April 2023 - 23
PLANSPONSOR - March - April 2023 - 24
PLANSPONSOR - March - April 2023 - 25
PLANSPONSOR - March - April 2023 - INVESTMENTS
PLANSPONSOR - March - April 2023 - 27
PLANSPONSOR - March - April 2023 - 28
PLANSPONSOR - March - April 2023 - 29
PLANSPONSOR - March - April 2023 - PLAN ACCESS
PLANSPONSOR - March - April 2023 - 31
PLANSPONSOR - March - April 2023 - 32
PLANSPONSOR - March - April 2023 - 33
PLANSPONSOR - March - April 2023 - GOVERNANCE
PLANSPONSOR - March - April 2023 - 35
PLANSPONSOR - March - April 2023 - 36
PLANSPONSOR - March - April 2023 - 37
PLANSPONSOR - March - April 2023 - FIDUCIARY FORUM
PLANSPONSOR - March - April 2023 - INSIDE ANGLE
PLANSPONSOR - March - April 2023 - PLAN PROFILE
PLANSPONSOR - March - April 2023 - Cover3
PLANSPONSOR - March - April 2023 - Cover4
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