P&I 2024-11-04

Excellence & Innovation honorees got creative to bene t participants

Employers looking to take their workplace retirement savings plans to the next level were honored at the 13th annual Excellence & Innovation Awards sponsored jointly by Pensions & Investments and the De ned Contribution Institutional Investment Association.

In a ceremony during P&I’s De ned Contribution West conference in Pasadena, Calif., P&I and DCIIA recognized ve individuals and two teams for initiatives that aimed to improve employees’ retirement readiness.

Several used re-enrollment campaigns to “auto-boost” the deferral rates of employees

Profiles of the honorees begin on Page 12

not maximizing the employer matching contribution, while others attacked the perennial issue of helping employees draw down their retirement savings by introducing target-date funds with built-in annuities to their plan investment menus.

Other winning initiatives revolved around the launch of an in-plan emergency savings program and a deep data dive into racial and other disparities in workplace retirement readiness. n

The winners

Raymond Jimenez , Adventist Healthcare Retirement Plans

Rose Murtaugh , International Motors

Sarah Fry , NACCO Natural Resources

Mark Meigs , Tennessee Valley Authority Retirement System

Stephanie Paulson , U.S. Venture

Indiana University Health Unum Group

Washington

Economic, regulatory policy now in voters’ hands

Effects of presidential election will reverberate throughout institutional investing industry

y B BRIAN CROCE

Vice President Kamala Harris and former President Donald Trump are campaigning on vastly different plans in an election that’s widely expected to be decided by ultra-slim majorities in a few key states.

Their differences range from foreign policy to immigration to reproductive rights, but Trump and Harris also diverge on tax policy and the economy, and regulatory issues concerning retirement plans and investors broadly, sources said.

Here’s a look at some key policy areas ahead of the Nov. 5 election:

Taxes

Regardless of who’s in the White House come January, tax policy will be a major discussion point in Washington next year as many of the provisions in the Republican’s 2017 Tax Cut and Jobs Act expire in 2025.

Trump, who signed the 2017 bill into law, called for extending the bill’s expiring provisions, which mostly affect individuals, such as increases in both the standard deduction and the child tax credit.

Harris, like President Joe Biden, has vowed not to raise taxes on Americans who make under $400,000 annually (about 98% of taxpayers according to the nonpartisan Tax Foundation), but has called for raising taxes on corporations

leigh. The candidates are vying to succeed Treasurer Dale R. Folwell, who has held the title since 2017. Folwell decided not to run again, instead launching a campaign for the Republican gubernatorial nomination, which he lost in March. Harris, who holds a Ph.D. in economics and is a former economic State treasurer elections to impact pension funds, auto IRA

Though most attention is on the presidential race this election season, several state treasurer races could determine the future of pension funds and other retirement programs for Americans all over the country.

Many of those vying for the of ce

of state treasurer are focused on improving their states’ pension funds, while other candidates hold con icting views over state auto IRA programs — programs that create a retirement plan for those whose employers don’t offer one. In a handful of states, ESG investing is a key issue in the treasurer’s race, given some Republicans’ strong views

against what they call a “woke” agenda. Here are the state treasurer races to watch and what they each entail:

North Carolina

In North Carolina, state Rep. Wesley Harris, a Democrat, is running for treasurer against Republican candidate Brad Briner, former co-CIO of

investment rm Willett Advisors, which manages the philanthropic assets of Michael R. Bloomberg, including those of Bloomberg Philanthropies. Briner left his position at Willett to run for of ce, according to his campaign website.

The state treasurer serves as the sole trustee of the $123 billion North Carolina Retirement Systems, Ra-

2024 HONOREES: From left, Adventist Healthcare’s Raymond Jimenez, International Motors’ Rose Murtaugh, NACCO Natural Resources’ Sarah Fry, Unum’s Ben Roberge, U.S. Venture’s Brooke Puta (accepting for Stephanie Paulson), TVARS’ Mark Meigs and Indiana University Health’s Tonya Adams.

IN THIS ISSUE

Alternatives

KKR execs think the best way to get alts into 401(k) plans is via target-date funds. Page 23

Consultants

Hightower’s CEO says the rm’s acquisition of a majority stake in NEPC will be ‘transformational.’ Page 6

Defined Contribution

P&I’s DC West conference brought together top plan sponsors and distinguished DC industry executives. Page 16

ESG

Denmark’s AkademikerPension is shifting some assets out of active management, but it’s not giving up on it. Page 4

The 2024 proxy season saw more attempts by shareholders to separate the roles of CEO and chairman. Page 6

Oklahoma Treasurer Todd Russ is one of the parties being sued in connection to the state’s anti-ESG law. Page 23

Washington

BlackRock’s Larry Fink thinks the U.S. needs more discussion around retirement and the national debt. Page 26

Plan sponsor survey in progress

Pensions & Investments is accepting late responses to the annual survey of the largest U.S. retirement funds. Sponsors with combined U.S. pension and de ned contribution plan assets of $1.5 billion or more are eligible to participate. Results will run Feb. 10.

To request a survey or obtain further information, please contact Anthony Scuderi at ascuderi@ pionline.com or 212-2100140, or visit www.pionline. com/section/surveys

Intensity of DOL’s duciary rule defense? TBD

The Department of Labor’s duciary investment advice rule is facing a tough challenge in court, and the outcome of the presidential election will likely determine how vigorously the department gets to defend its case, legal experts said.

“If Donald Trump is elected president, it is entirely possible that there would be a repeat of what occurred in 2018,” said Marcia S. Wagner, founder and managing partner of The Wagner Law Group.

Wagner was referencing a lawsuit brought against a 2016 Obama-era rule that broadened the de nition of

a person or entity taking on duciary responsibilities and replaced the ve-part test that determines when someone is an investment adviceduciary under ERISA. The 2016 rule, which swept up virtually any recommendation to a retirement investor, was struck down in 2018 by a threejudge panel at the 5th U.S. Circuit Court of Appeals in New Orleans.

The Trump administration, which took of ce in January 2017, allowed the Justice Department to defend the rule before the 5th Circuit in July 2017 oral arguments, but after the panel ruled against the Labor Department the following year, the administration elected not to appeal the decision and the duciary rule died.

In April, under the Biden administration, the Labor Departmentnalized the Retirement Security Rule, which, among other things,

Penn Muni CEO on the fund’s move to risk-off

Four years into an overhaul of its investment management philosophy, the $3.4 billion Pennsylvania Municipal Retirement System has fully embraced a new risk-off approach, Timothy Reese, the Harrisburg-based pension fund’s secretary, told Pensions & Investments

Reese has of cially held the position of the pension fund’s top executive of cial since January. The role had been vacant since the departure of Steve Vaughn in the fall of 2019, and Reese had been leading the pension fund as a consultant since November 2020.

Previously, Reese was founder and CEO of Forge Intellectual Capital, a treasury management and investor services consulting rm, and he had also served as Pennsylvania’s treasurer from 2015 to 2017. Reese was originally brought aboard as consultant in 2020 to help the system through the turbulent COVID-19 pandemic era, and was brought in as state treasurer in 2015 on a similar mission.

The rst thing Reese did in 2020 was recognize that much of the post-COVID market gains were due to the federal government’s stimulus efforts and there was no way the “gangbusters” market was going to last.

“I was looking at the investment policy and looking at the way it was tilted,” said Reese, “and it had in my opinion a very ‘risk-on’ policy, and that’s because of the level of active management we had to retain.”

As of June 30, 2020, the pension fund — which had $2.6 billion in assets at the time – had a total of $569 million invested with four active domestic large-cap

changed the ve-part test so that one-time advice, such as rollovers to IRAs or annuity purchases, must be in an investor’s best interest.

Department of cials have said the rule is needed to better protect retirement savers and is more narrowly tailored than the 2016 rule.

Insurance and annuity groups disagree and have challenged the rule in two separate lawsuits. Two District Court judges in July each favored the plaintiffs’ arguments and stopped implementation of the rule, which was slated to take effect in September.

In legal lings last month, the department said it would appeal the two District Court rulings in the 5th Circuit.

What would Trump do?

Michael L. Hadley, a partner at Davis & Harman, said the legal pro-

cess could take years to play out as the two sides could appeal a decision they don’t like all the way to the Supreme Court.

If the 5th Circuit upholds the department’s authority to adopt the Retirement Security Rule, the parties challenging the rule would seek review by the Supreme Court but a Trump administration’s Department of Labor might not seek to defend its statutory authority, according to Wagner.

Moreover, Hadley agrees that if Trump wins a second term, his administration wouldn’t appeal any decision that goes against the department and may even cease its defense before a decision is rendered or arguments are heard.

“Our view is that a Trump administration is likely to take a very similar approach to the duciary rule

Janus Henderson Investors “always had a great foundation,” according to Ali Dibadj, chief executive of the rm, despite a recent history of outows.

Dibadj took the helm at Janus Henderson in June 2022, having previously served as chiefnancial of cer at AllianceBernstein. At that time, the foundations at his new rm may have looked decidedly shaky.

Following the merger of Janus Capital and Henderson Group in May 2017, there were no less than 23 consecutive quarters of out ows, leading to a net fall of $119 billion.

Janus Henderson returned to in ows after that sustained period of out ows in the rst quarter of 2023. Since then, however, it returned to outows four quarter in a row before booking net in ows for the quarter ended June 30. Investment returns have helped to bolster assets under management to $361 billion as of June 30, vs. $345 billion at the time of the merger.

With some signs that the ship may be turning around on his watch, Dibadj said, “Janus Henderson continues to have a great foundation based effectively on three things: strong investment acumen, great research and intellectual curiosity.”

Dibadj represents a next stage of Janus Henderson, with the heady days of Bill Gross’ infamous 2014 decision to jump ship from PIMCO to the rm in the rearview mirror.

“We don’t really talk about that time frame as much. We don’t candidly talk about the merger. What we do talk about is our forward strategy,” Dibadj said.

Acquisition spree

A return to in ows intertwines with Janus Henderson embarking upon an acquisition spree. A recent move was the September completion of its acquisition of NBK Capital Partners, the alternatives investments arm of the National Bank of Kuwait, signaling both a further expansion into an asset class and into the Middle East region.

LOOKING TO THE FUTURE: Janus Henderson’s Ali Dibadj

Outreach key for new Disney student loan bene t

Customizing communications made program adoption easier

y B MARGARIDA CORREIA

SECURE 2.0 may be complex and dif cult, but it’s made it easier to implement many of the programs Walt Disney had long dreamed about, said Pascale Thomas, Walt Disney’s vice president of enterprise employee bene ts and well-being, at Pensions & Investments' De ned Contribution West conference in Pasadena, Calif.

One, she said, is student loan matching on 401(k) contributions, a program that Walt Disney made available in March.

“The student loan debt match was something that we had been talking about for a number of years, but that we now had a way to be able to introduce it without it looking like one of those lovely ideas from the bene ts department,” Pascale said in a keynote conversa-

tion with Nikki Pirrello, Pensions & Investments’ president and publisher.

“We could launch that and actually get the support and buy-in from the segments that could actually bene t the most in a way that did not require a ton of conversations in terms of negotiations,” she said.

The company estimated that approximately 1,200 of the eligible participants in the $16.5 billion 401(k) plan could bene t from student loan matching. Of the 1,200, approximately 400 availed themselves of the opportunity, Pascale said.

Other initiatives made possible through SECURE 2.0 included a short-term and emergency line of credit program.

Customizing nancial communication is

and ESG rules

y B COURTNEY DEGEN

Ali Khawar, principal deputy assistant secretary for the Labor Department’s Employee Bene ts Security Administration, defended two department rules facing litigation and addressed the concerns surrounding the lost-and-found database it’s building.

One of the rules being challenged in court, known as the Retirement Security Rule, alters the test used for determining an investment advice duciary under ERISA, changing it so that one-time advice, such as annuity purchases or rollovers to IRAs, must be in an investor’s best interest.

The department nalized the rule and related amended prohibited transaction exemptions in April. However, in July, two federal judges in Texas separately halted the rule’s implementation. Both those judges said the rule is substantially similar to

Private equity managers under the microscope

Borzi, Iwry take home EBRI lifetime achievement awards

y B ROBERT STEYER

Although they played prominent government roles in the development and expansion of retirement security, Phyllis Borzi and J. Mark Iwry say de ned contribution sponsors can make improvements without waiting for the next regulation, law or political administration.

Financial wellness, emergency savings and auto features are already available for more plans to help more people, said Borzi, former head of the Employee Bene t Security Administration and assistant secretary of labor from 2009 to 2017 during the Obama administration.

More employer contributions to participants’ accounts and better business practices will improve retirement security, said Iwry, senior adviser to the secretary of the Treasury from 2009 to 2017 as well as

deputy assistant secretary for retirement and health policy, Of ce of Tax Policy, U.S. Department of the Treasury from 2009 to 2017.  They offered their prescriptions in separate email interviews several days before they were honored with Lifetime Achievement Awards presented annually by the Employee Bene t Research Institute. The awards were announced Oct.

The Cambridge Associates U.S. Private Equity index’s one-year return through March 31 was 8.3%, underperforming the Russell 3000 and Russell 2000 indexes by about 21 and 11.4

points, respectively. That shines a spotlight on asset owners’ manager selection, since the major private equity rms’ portfolio companies have vastly differing capital

Allocations vary: U.S. public pension funds had a median 13% allocation to private equity, according to last year’s P&I 1,000 survey. That compares with 7% for corporate pension plans and 11% for union and miscellaneous plans. Pension plan PE allocations by percentile ranks

Default rates: Portfolio company default rates varied among 12

Recapitalization differences: Large private equity sponsors have taken different approaches to dividend recapitalizations ( nancing dividends with debt). Those ranged from Platinum Equity funding dividends with debt at 8% of its owned companies to 50% for Warburg Pincus.

and nancial policies.

Distressing data: Distressed companies, which are de ned as rated B3 negative and lower by Moody’s, make up over 50% of Platinum Equity and Clearlake Capital portfolios. % of companies that are

COMMUNICATION IS THE KEY: P&I’s Nikki Pirrello and Walt Disney’s Pascale Thomas

FACING PUSHBACK: EBSA’s Ali Khawar

HONORED: Phyllis Borzi and J. Mark Iwry

Danish fund hasn’t foresaken active management, says CIO

agement,” CIO Anders Schelde told Pensions & Investments

While Denmark’s AkademikerPension is shifting some of its equity portfolio to an in-house passive or semi-passive arrangement, “it’s not that we’ve given up on active man-

PRIVATE MARKETS

However, the Gentofte-based, 136 billion Danish kroner ($20 billion) pension fund, well-known for its active ESG engagement, is no exception to the global trend of asset owners turning to a passive approach in recent years, in the pursuit of maximizing value for money and out of a desire to reduce fees. The pension fund also has its own speci c reasons.

“We are rm believers in the value of active management. With a portfolio of our size, we are able to negotiate reasonably competitive fees for this. So it’s not that we should have given up on active, but the business model we have is one that relies very heavily on outsourcing of our asset management to external managers.”

AkademikerPension currently outsources half of its listed assets to external managers, all of which is actively managed. However, Schelde thinks a shift to a broader passive approach would only reduce costs marginally, as the main driver of costs are unlisted assets and that overhauling the basic operating model of the fund is a more important motivation to make the change.

“We do need to change the balance (toward internally managed passive), so that we create an even stronger organization that can motivate, attract and retain talented people in a labor market with erce competition for talent. In my view, this is necessary in order to successfully outsource to external active managers in the long run, and bringing assets back home simply becomes a tool to nance that change,” he said.

As to whether any further incorporation of passive would affect AkademikerPension’s ESG approach, Schelde is not worried on this front.

“If we do passive internally, we are able to do it in a way that’s fully compliant with the way that we would approach ESG,” he says.

Evolving

ESG approach

In September 2023, AkademikerPension completed a multiyear divestment program designed to purge its portfolio of oil and gas stocks. The fund divested fossil fuel stakes worth a combined 3.7 billion kroner ($540 million), with the divestments spread out over half a decade.

For Schelde, there were two distinct factors motivating the decision to divest; both a sense of ethical responsibility, and ensuring long-term investment returns for the plan’s participants.

“Regarding responsibility, there is an argument to stay invested and try to engage with the companies. I have doubts that you can succeed with that (in oil and gas) but maybe if you’re committed enough and you’re big enough, you can make some change.”

“The winning argument was more to do with investment returns. Taking a long-term structural investment outlook for the oil and gas sector, if it doesn’t have a successful net-zero transition, we don’t think that the prospects are very good,” Schelde said.As for net zero, CEO Jens Munch Holst has previously decried the departures of asset managers from climate initiatives, in March claiming that it “poses a setback to global engagement on climate change” in comments made to Pensions & Investments

Schelde concedes that a full divestment from the oil and gas sector means AkademikerPension can no longer engage with the sector, yet he also believe this move can present

shape

Art installation inspired by the Large Hadron Collider at CERN, Geneva.

Shareholders still seek to separate CEO, chair roles

BlackRock, Goldman among rms targeted in 2024 proxy season

y B SOPHIE BAKER

As the dust settles on the 2024 proxy voting season, one issue that’s been on investors’ minds for decades remained high on the agenda yet again, making waves because of the high-pro le companies that were challenged on the topic: The importance of splitting the CEO and chair role.

BlackRock and Goldman Sachs were just two of the high-pro le rms that were subjects of shareholder proposals to split the roles, while French oil and gas rm TotalEnergies saw 19 investors le a shareholder resolution at its annual general meeting to separate the functions.

For BlackRock, shareholder and activist hedge fund Bluebell Capital — a London-based rm that focuses predominantly on large-cap companies and on addressing speci c operational, strategic and capital allocation, or governance and ESG issues — led a resolution in April

calling for an independent chair of the board. Bluebell Partner and CIO Giuseppe Bivona con rmed in an email that splitting CEO and chair roles is evaluated by the rm on a case-by-case basis.

The proposal — which did not gain enough shareholder support to be carried forward — would have split the roles held by Larry Fink, the $11.5 trillion money manager’s CEO and chair. Bluebell cited the “lack of independent oversight within BlackRock’s board” as being “evidenced by the numerous contradictions and inconsistencies between BlackRock’s ESG strategy and its imple-

Canadian Pension MANAGEMENT

mentation,” according to a document on its website.

BlackRock said in its 2024 proxy statement that the board “has considered the proposal and believes that, for the reasons described below, the proposal is not in the best interests of BlackRock and our shareholders.”

It said the board “regularly reviews its leadership structure, and considers this to be a key component of ful lling its duciary duties to our shareholders. Importantly, the board has chosen to maintain exibility in its leadership structure and has not mandated the separation of the

chairman and CEO roles. The board determined once again this year that the service of Mr. Fink as both BlackRock’s CEO and chairman is the most appropriate and effective leadership structure for the board and the company at the present time.”

BlackRock added that, in the proposal and “other forums,” Bluebell had “made multiple misguided, incorrect and contradictory criticisms of BlackRock that are rooted in its disagreement with proxy voting decisions made by BlackRock’s investment stewardship team (BIS) on behalf of the company’s clients.” It

SPONSORSHIP OPPORTUNITIES ARE AVAILABLE

Hightower’s deal with NEPC will create $258B asset manager

The Canadian retirement landscape includes defined benefit, defined contribution pension plans, and various savings vehicles. To address evolving needs, P&I’s Toronto conference—formerly Canadian Pension Risk Strategies—now spans two days, covering plan strategy, asset allocation, and risk management for all retirement plan types. Attendees, including leading allocators like the Maple 8, asset managers, policymakers, and experts, will explore trends and regulatory updates shaping Canadian retirement plans.

New interactive activities include roundtable discussions for in-depth topic exploration as well as structured Q&A panels. Connect with peers and top industry leaders through ample networking opportunities.

y B DOUGLAS APPELL

Hightower Holding, a Chicago-based wealth management rm, has agreed to acquire a majority stake in Boston-based investment consulting rm NEPC. Hightower and NEPC executives said the deal should close in early 2025. They declined to provide further details on the costs of the transaction, beyond noting that NEPC professionals would continue to retain signi cant stakes in NEPC, as well as Hightower.

While registered investment advisory rms have shown growing interest in acquiring institutional consulting businesses of late, Hightower and NEPC’s scale promise to make their combination “transformational,” said Bob Oros, Hightower’s chairman and CEO, in an interview.

Together, Hightower — a leading industry consolidator of 140 U.S.nancial advisory practices since its founding in 2008 — and NEPC, with $1.66 trillion in assets under advisement or management, would boast $258 billion in assets under management.

Of that total, roughly $156 billion is being overseen by Hightower’snancial advisers while NEPC’s outsourced CIO business comes to just over $100 billion.

Meanwhile, Michael Manning, managing partner of NEPC, will join the Hightower’s board of directors once the deal closes. Manning, in the same interview, said the deal would help accelerate the growth of an NEPC wealth management segment that, while only 3% of the rm’s OCIO business, had already become a “full edged business line” from a revenue perspective over the past seven years or so.

Contact Kimba Jackson at kjackson@pionline.com or Andy Jenkins andy.jenkins@pionline.com for more details and availability.

The synergies of a Hightower-NEPC combination make the deal an exciting one for both rms, agreed Oros and Manning. This is truly a “one plus one equals ve” situation, noted Oros.

Oros said growing demand from

OCTOBER 20-22 | THE LANGHAM, PASADENA

We extend a heartfelt thank you to our Sponsors, Advisory Board, Speakers, and dedicated Attendees for their invaluable contributions in making this year’s DC West Conference a truly unforgettable event!

THE FOURTH LEG OF THE STOOL

Health and medical care key components of retirement, say retirees

Don’t discount the importance of health and medical care when it comes to retirement, a group of retirees said at a panel for Pensions & Investments’ De ned Contribution West conference in Pasadena, Calif.

“In my career, the last thing I thought about was health,” said Steve Ferber, former senior vice president, account manager and CIT strategist at PIMCO, at the Oct. 22 panel.

Ferber recalled getting hit by a car while walking across the street on a business trip, in which he was thrown 15 feet by the impact.

“I got up, checked my bones. Nothing seemed to be broken; I wasn't bleeding. And so, what did I do? Go to the hospital? No, I did my two meetings, of course. Then I went to hospital,” he said.

“So, if I had to do it over again, I would take better care of myself,” Ferber added. “Being able to reach retirement and (reach it) healthy is an extraordinary thing.”

Kathleen Strukoff, former Paci c Southwest market leader at Aon, noted that people often delay retirement because of medical costs, and there’s a lot of misinformation about Medicare out there.

Keith Overly, former executive director of the Ohio Public Employees Deferred Compensation Program, echoed this, adding that there’s often “misinformation or lack of understanding about Medicare, about how Social Security works (and) spousal bene ts for Social Security.”

Strukoff recommended one solution for addressing the

confusion.

“If you care about your employees and you want to reward them

BlackRock’s Anne F. Ackerley, top left, was the keynote speaker at the Women Investment Professionals’ annual Trailblazer awards dinner, held to honor women whose personal and professional excellence has inspired others. At top right, WIP’s Elizabeth Brewer (left) presents the Joanne Hickman Dodd Award, which recognizes outstanding next-generation leaders, to Mackenzie Merrill of Margaret A. Cargill Philanthropies. At bottom right, WIP’s Christy Whittington (left) celebrates Exelon’s Jessica K. Hart, winner of the Distinguished Investment Professional Award, which is given to a woman who, over a distinguished career, has exempli ed support for the advancement of women.

If women invested at the same rate as men, there would be an extra $3.22 trillion in assets under management from private individuals, according to a report by DWS, a money manager in Frankfurt, Germany, and in this case referencing a data point from BNY. The report analyzed how asset managers can support female investment trends. One way is increasing the proportion of nancial advisers that are women, with research from consultant

McKinsey and the University of Mannheim in Germany showing that more than two-thirds of women prefer to speak to a female nancial adviser. However, in many countries, including the U.S., Germany, and the U.K., no more than 20% of nancial advisers are women.

According to consultancy rm Oliver Wyman, there is at least a $700 billion global revenue opportunity for the nancial services industry in better serving

for having a long-time

the company, I think it'd be worth it to have something like a

Almost two-thirds (64%) of 401(k) participants said their employers took steps to help them manage nancial stress this year, up from 52% in the prior year, according to Charles Schwab’s 2024 401(k) Participant Study.

The most common method of mitigating such stress was a pay increase, which 39% of participants said their employers enacted. That action was followed by more exible work arrangements (19%), an increased 401(k) match (18%), access to nancial wellness/education resources (15%) and additional bonus payments (14%).

Only about one-fourth of workers (24%) said they felt “very good” about their nancial health, but that’s an improvement over last year (20%). About one-half of workers say their nancial health has not changed since last year, and one in ve say their nances have worsened.

Younger workers were more likely to say their nances have improved over last year. Indeed, 37% of Gen Z and 35% of millennials said they saw an upgrade of their nancial health over last year, while only 28% of Gen X and 21% of baby boomers felt that way.

“While the markets have generally performed well this year, in ation and economic conditions have continued to put pressure on workers’ nances at elevated levels,” said Lee McAdoo, managing director of Schwab Retirement Plan Services, in a

women as customers, including $25 billion in new fees for wealth and asset managers that could come from helping women manage their investments in the same way they do for men.

In Europe, women invest an average of 29% less than their male counterparts, according to research cited from German bank N26. In Spain, women allocate 15% less of their monthly income toward investments than their male counterparts do. The largest gaps

release issued in conjunction with the study.

More than four years since the emergence of the COVID-19 pandemic, exible work arrangements are important to 84% of workers with 401(k) plans. Moreover, 32% of workers said they would be willing to forgo a salary increase of 15% for more autonomy over when and where they do their job.

Flexible work arrangements are slightly more important to women (87%) than men (82%), but fewer women would forgo a raise to obtain the perk.

In addition, the survey found that nearly one-third (32%) of workers want help in understanding how new regulatory and legislative changes, like the SECURE 2.0 Act, will affect their retirement plan. The most pronounced interest was related to the federal government’s plan to make matching contributions to workers’ retirement accounts based on income, which was requested by 53% of workers.

“As employers navigate changes they can make within their retirement plans, it’s important to evaluate which provisions could add the most value for their employees,” said Marci Stewart, director of client experience at Schwab Workplace Financial Services, in the release.

The online survey of 1,000 U.S. 401(k) plan participants was conducted between April 17 and May 3.

exist in Germany and France, where men invest 43% more of their monthly income than women.

The research from N26 indicated that a lack of money was noted as the biggest obstacle among investors (45%). This may indicate larger, systemic challenges, such as pay disparities or the disproportionate nancial burden of caring for young children faced by women today, DWS said in its report.

There were some positive developments for women noted in

the report, such as more women than men are now receiving tertiary education in both the U.S. and Europe. Yet, Of cial Monetary and Financial Institutions Forum and Council on Foreign Relations data in the report also showed that as of August, only 13% of the world’s political leaders and 16% of the world’s 185 central bank governors were women.

The report was authored by Maria Milina, a research analyst at DWS, and Michael Lewis, head of ESG research at the rm. DWS Group had €933 billion ($999 billion) of assets under management as of June 30. CHRISTOPHER MARCHANT

PALASH GHOSH

career at

retiree

concierge,” Strukoff said, which Overly agreed would be helpful.

COURTNEY DEGEN

HEALTH IS KEY: From left, Don Ezra, Steve Ferber, Keith Overly, Sherie Shafer and Kathleen Strukoff

OTHER VIEWS CHRISTIAN PELLEGRINO

OPINION

The what and why of institutionalizing tokenization within asset management

Asset and fund representation has undergone slow but signi cant change over the last 50 years. Traditionally, mutual funds were divided into units for investors to represent their ownership within the fund, which then evolved with the introduction of share classes to allow exibility in fee structures and voting rights depending on investor needs/preferences. With the continuous advancement of technology and electronic trading platforms, shares have further evolved, recently embracing fractionalization. Yet, as the industry looks forward, there is a growing question about whether tokenization will be the next stage of evolution, and whether the change will be any faster than those seen over the past half a century.

At its core, tokenization involves utilizing blockchain or distributed ledger technology for record keeping with issued tokens representing value and the ownership or other rights associated with an asset. In the context of traditional asset and wealth management, key focus currently surrounds issuance of the underlying asset, both in terms of representation type and asset complexity.

Pellegrino is director, head of digital assets at Alpha Financial Markets Consulting, a global consultancy to the asset and wealth management industry. He is based in New York.

Representation type: Generally speaking, there are two types of representation – native asset tokenization and asset-backed tokenization. Native asset tokenization includes the issuance of an asset for the rst time on-chain, whereas asset-backed tokenization issues a digital replication of an existing asset for which the current process for record keeping persists. Popularity of representation types vary across the investment value-chain, with managers currently focused on asset-backed tokenization and the distribution opportunity for existing strategies.

Asset complexity: Complexity of the underlying asset can range across asset classes (e.g., real world assets, listed equity, etc.), and across the investment value-chain (e.g., tokenization of a single traditional asset, bundling multiple already tokenized assets, or tokenizing a single traditional asset with multiple constituents). Most recent interest for managers is currently focused on the tokenization of money market funds (tokenization of a single traditional asset), and existing strategies (tokenizing a single traditional asset with multiple constituents).

As mentioned above, the most popular use case for tokenization has been money market funds, with approximately $1.9 billion in assets under management across tokenized products offered by rms such as Franklin Templeton, BlackRock, Fidelity, Coinbase, Arca and abrdn. While tokenized money market funds are expected to continue in popularity, the replication of privates/alternatives is anticipated to fuel investment by asset managers to leverage tokenization as an alternative “investment wrapper” for existing strategies in order to meet general demand and inef ciency within the market. A few examples include Hamilton Lane’s $3.8 billion private assets fund and KKR’s $4 billion healthcare fund, of which portions are tokenized to provide

Looking further into the future, native asset tokenization anticipates the issuance of nancial instruments directly on-chain via smart contracts (or programs on chain that automate transactions or processes once predetermined conditions are met), with critical mass adoption expected when tokenized exchanges move “upstream,” indicating a deeper integration of native tokenized assets into the nancial ecosystem.

Integration of tokenized products with the investment management industry aims to solve key points of friction that exist in the market. For investment products that have low liquidity, long lock-up periods, high investment minimums, lack of transparency, and limited access, tokenization helps mitigate some of this existing friction by enabling liquidity, transparency, and accessibility.

Tokenization allows for cheaper secondary transactions, with investors being able to sell their stake more ef ciently in a fund within the ve to seven-year fund maturity time frame. It also enables public tracking of ownership and transactions, which will provide investors with a view of the underlying assets in real-time. This is speci cally important for money market funds, given that managers have transparency into the ows within the fund, which helps them manage their short-term and medium-term cash ow needs.

pre-approval based on key investor characteristics like geography and accreditation status.

As the industry matures, a natural consolidation of providers is anticipated, with leading platforms securing market share and fostering strategic partnerships. A notable advancement lies in the trajectory of tokenized exchanges, potentially moving “upstream” by facilitating initial tokenized offerings on their platforms, akin to traditional nancial exchanges handling IPOs. This transformative shift is poised to occur once tokenized exchanges effectively address central distribution and liquidity challenges, marking a signi cant milestone in the evolution of the digital assets landscape.

The implications of tokenization extend across both the buyside and sellside of an asset manager’s operating model and product strategy.

Finally, investors can own fractional shares of assets and/or funds, broadening access to a wider range of potential LPs due to smaller minimum investments.

The ongoing evolution of blockchain technology is marked by a gradual standardization of frameworks and blockchain features, with a focus on choices between public and private blockchains and varying permission levels. Simultaneously, efforts are underway to streamline KYC (“know your customer”) and investor onboarding work ows, emphasizing

The key challenge for asset managers is determining the optimal entry point into tokenization. While Alpha anticipates a continuation of current adoption rates in the short-term, there is an expectation that acceleration will happen swiftly, driven by market innovation and a reliance on tangible bene ts as critical mass approaches.

Recognizing the potential of tokenization, asset managers are compelled to de ne a strategic approach, emphasizing the importance of making calculated investments in this evolving technology. Proactive measures taken now empower managers to stay ahead of the curve, mitigating the risk of future overspending to catch up with competitors. The implications of tokenization extend across both the buy-side and sell-side of an asset manager’s operating model and product strategy, emphasizing the necessity for a well-prepared playbook for pivotal market milestones. This strategic foresight ensures that asset managers are not merely reactive but are actively positioning themselves to harness the advantages offered by tokenization. 

democratized access to these funds.

Christian

Alternative assets can play a very useful role in 401(k) plans and other de ned contribution plans. And plan sponsors are increasingly considering using them in target-date funds, multiasset funds and managed accounts.

However, there are a few governance-related and operationally-related steps that sponsors should be aware of that can ease the implementation of alternative assets in those de ned contribution plans.

The case for alternative investments in retirement plans is strong. They increase diversication, which can enhance returns or mitigate risk, or both. For example, the Georgetown Center for Retirement Initiatives recently published a paper on this topic. One conclusion: Based on a set of very reasonable assumptions, a 10% allocation to alternative assets could increase returns by 0.15%. This may seem small at rst, but that translates into $2,400 per year in additional income for a retiree who would otherwise receive $48,000 in annual retirement income.

Similarly, most alternative assets offer lower observed volatility than publicly traded stocks and several types have had low correlation to public markets. The De ned Contribution Alternatives Association (DCALTA) and Institute for Private Capital released a study with the University of North Carolina that shows risk/reward ef ciency — using multiple metrics of risk — can be improved 25% when private investments are included.

Additionally, today there are about half as many publicly traded companies as there were 20 years ago. Around 3,600 companies are publicly traded while more than 11,000 are privately held. The private universe is growing, and this area of investment opportunity should be available to DC participants. Finally, institutional investors such as de ned bene t plans and wealthy U.S. investors — as well as everyday Chinese, U.K., and Australian savers — have access to these kinds of U.S. investment opportunities. Some large public plans have extended their de ned bene t alternatives portfolios to their DC participants. The middle-class worker who will be dependent on a 401(k) in retirement should have access to alternative investments as well. These arguments and data points are well-known and widely accepted, and the Department of Labor has twice in recent years published guidance indicating that alternatives can prudently play a role in target-date funds. The industry is rapidly addressing some challenges, such as valuation, liquidity and fees. But there are other hurdles that are not as widely discussed. There are ve topics plan sponsors can address even before

adding alternatives to target-date funds or to the DC menu. Most of these relate to needed updates to the investment policy statement. Who makes the decision to include private investments should be made clear. If the sponsor makes the decision to include private investments, it is a settlor decision, leaving the duciary committee to determine which private opportunities to invest. Or the sponsor could delegate to the duciaries

both whether and which private investments to include. Sponsors may want to further empower duciaries to potentially outsource some decisions to experts in private investing, such as an outsourced chief investment of cer.

Besides addressing valuation and liquidity as strategic or tactical questions from an investment management perspective, the

Charles E.F. Millard is the former director of the U.S. Pension Bene t Guaranty Corp. and senior adviser for Ares Management Corp. He is based in New York. Clinton S. Cary is the former CIO of Aon’s OCIO business and co-chair of the DCALTA Implementation and Operations Committee. He is based in Chicago.

Meet the 2024 honorees

PROFILES by MARGARIDA CORREIA

Raymond Jimenez Adventist Healthcare Retirement Plans

Adventist’s in-house advisers pave way for participant success

Raymond Jimenez, president of Adventist Healthcare Retirement Plans, ties the success of Adventist’s revamped multiple employer plan to one single factor: the organization’s small band of in-house nancial advisers.

“That’s the secret sauce,” said the winner of an Excellence & Innovation Award.

The staff of 10 advisers — all either certi ed nancial planners or in the process of becoming CFPs — played a key role in educating participants about signi cant plan changes that started in 2017 with the streamlining of investment options and concluded in May with the implementation of a target-date fund with an embedded annuity — the BlackRock LifePath Paycheck fund — as the plan’s quali ed default investment option.

“They’re out there meeting with participants face-to-face, doing new employee orientations and helping people,” Jimenez said of the nancial advisers employed by AHRP.

Jimenez explained that the advisers — whom he refers to as nancial educators — are paid a salary and don’t make commissions, and are themselves participants in the $11 billion plan.

“The participant can feel that there’s no underlying motive for a nancial educator to be talking to them about what they should be doing, what they should be

considering and what might be best for them,” Jimenez said. “They can feel comfortable knowing that this person is going to give them great advice.”

The advisers were critical in helping Adventist's 170,000 participants understand the BlackRock LifePath Paycheck fund, which AHRP made available after an exhaustive evaluation process.

AHRP had previously offered a “super complex” in-plan variable annuity that few participants used, Jimenez said.

The BlackRock product was relatively easy to understand and provided the guaranteed lifetime income that AHRP was seeking for its female-dominated workforce.

The BlackRock LifePath Paycheck target-date series acts like an ordinary target-date fund until participants hit age 55, at which point the fund allocates 10% of the balance to a new asset class called “lifetime income.” The allocation to lifetime income grows gradually to 30% by the time participants reach 65.

When participants are between the ages of 59½ and 71, they have the option to use the money set aside for lifetime income to purchase an annuity from insurers selected by BlackRock.

The new target-date fund with a built-in annuity would help “those concerned with outliving their savings,” Jimenez said, adding that the product would

Excellence & Innovation Award nalists for 2024

Four nalists were named to the 2024 Excellence & Innovation Awards, sponsored by Pensions & Investments and the De ned Contribution Institutional Investment Association:

Nikia Brown , Fox Factory Inc. 401(k) Pro t-Sharing Plan.

Tom Oksanen , Thermo Fisher Scienti c Inc.  San Bernardino County defined contribution committee.

Kevin Wade , AGFA HealthCare Corp.

help participants “spend better” in retirement.

Jimenez explained that some people are so afraid of outliving their savings that they don’t spend as much as they should to live comfortably in retirement.

Some, he said, don’t tap their 401(k) plans, living instead on Social Security and any income they receive from pension plans.

In his experience working with other plans, Jimenez said many participants aren’t taking regular

The judges for the 2024 Excellence & Innovation Awards provided a diversity of perspective and experience in working with representatives of Pensions & Investments and the Defined Contribution Institutional Investment Association.

The external judges were:

Josh Gotbaum , board chair, MarylandSaves.

Marla Kreindler , partner, Morgan Lewis & Bockius.

Jamie McAllister , senior vice president and de ned contribution consultant, Callan.

Lew Minsky , president and CEO, De ned Contribution

income streams from their 401(k) plans until they’re forced to through required minimum distributions.

“Guaranteed income changes a participant’s mindset and brings them some relief,” Jimenez said. n

Institutional Investment Association.

Cassandra Roth , senior communications consultant, Segal Benz.

Brooke Rowden , de ned contribution plans education and marketing director, Missouri State Employees' Retirement System.

Bill Ryan , partner and head of de ned contribution solutions, NEPC.

Michelle (Shelly) Schueller , deferred compensation director, Wisconsin Department of Employee Trust Funds.

Karen Witham , vice president, communications and marketing, De ned Contribution Institutional Investment Association.

Judges from Pensions & Investments were Julie Tatge , interim editor-in-chief, and Margarida Correia , reporter.

Sarah Fry NACCO Natural Resources

NACCO extended match to all employees, boosted deferral rates

When NACCO Natural Resources made part-time and temporary workers eligible for the company’s matching 401(k) contribution, it wanted to make sure that they all took full advantage of the perk.

The company’s desire to help this segment of the workforce spurred a 401(k) plan re-enrollment campaign that called for automatically increasing the deferral rates of plan participants, a move that won Sarah Fry, vice president, associate general counsel and assistant secretary at NACCO, an Excellence & Innovation Award.

Not many companies give part-time and temporary workers a matching contribution, she said, adding that the new bene t motivated her to push for automatically increasing the deferral rates of plan participants contributing less than the 5% needed to maximize the company match. In other words, any of the 1,792 participants contributing less than 5% would automatically be boosted to a 5% deferral.

NACCO matches employee contributions dollar-for-dollar, up to 5% of their pay.

While employees could lower their contribution rate, the company discouraged them from doing so as they would leave “free money” on the table, Fry said.

In addition to automatically boosting everyone’s deferral rate to 5%, it also enrolled participants in auto escalation and re-enrolled workers who had previously opted out of the plan.

Very few workers complained or opted out of the changes because they were told about the changes in advance, Fry said.

“Our local HR staff made sure that everybody knew this was going to happen,” she said.

As a result of the campaign, the number of people contributing less than 5% dropped to 19 from 50. Only six opted out of the automatic annual 1-percentage-point increase to their deferrals, Fry said.

Part of the reason few people opted out of auto escalation or reversed the higher deferrals also had to do with two changes to the re-enrollment process, according to Fry.

In addition to shortening the length of time that workers had to opt out of the changes by one week, the company also timed the higher deferrals and the auto

increase with the annual merit increase pay period, which mitigated the impact of the changes.

Plan participation also improved, ticking up to 99% from 97%

Mark Meigs Tennessee Valley Authority Retirement System

in 2023.

By Fry’s latest count, only 10 people are not participating in the company’s $764 million 401(k) plan.

“We’re trying to gure out how

we get to these handful of people,” Fry said. “I guess you’re going to have some people who are very stubborn and just don’t want to do it, and you just have to accept it.” n

TVARS’ ‘pension-like’ default option drove participant adoption

Many diligent retirement savers often struggle when it comes time to spending the money they worked so hard to save. That’s why the Tennessee Valley Authority Retirement System decided to add a target-date fund with a built-in annuity to the investment options offered in its $4.6 billion 401(k) plan.

The BlackRock LifePath Paycheck target-date series, which TVARS chose as the plan’s quali ed default investment option, automatically allocates a growing portion of a participant’s balance to a pool of money that the participant will later have the option to convert to an immediate annuity.

Many people are unclear on how to turn their savings into monthly income in retirement, said Mark Meigs, TVARS' executive secretary and winner of an Excellence & Innovation Award.

With the new LifePath Paycheck funds, participants will be able to establish a lifetime income stream in the form of a "monthly paycheck for life,” he said.

The BlackRock LifePath Paycheck target-date series acts like an ordinary target-date fund until participants hit age 55, at which point the fund allocates 10% of the balance to a new asset class called “lifetime income." The allocation to lifetime income grows gradually to 30% by the time participants reach 65.

When participants are between the ages of 59 ½ and 71, they have the option to use the money set aside for lifetime income to purchase a guaranteed lifetime income stream from insurers selected by BlackRock.

Meigs said that the new offering will set up the “employees of tomorrow” for success as they don’t have pension plan bene ts as some of their older co-workers do.

“The TVARS board wanted to be able to offer a pension-like option in the 401(k) plan for those who have no pension or have a frozen pension,” he said, adding that the TVARS’ pension plan closed in 2014.

Working with BlackRock, TVARS developed a comprehensive communications campaign explaining the new investment option that included a custom microsite, videos, brochures, postcards and two sets of FAQs.

The microsite exploded when it went live in June, receiving more than 750 clicks in the rst three days, triple regular website traf c.

“We tried to customize the materials to where it was not just generic messaging,” said Sally Weber, manager of retirement operations for TVARS.

As a result, TVARS had very few questions from participants when the LifePath Paycheck funds were introduced, with nearly half of the plan's 15,034 participants  — or 7,023 — invested in them as of June 30, she said.

Nevertheless, participant education about the new investment is ongoing. “We’re rolling out some group sessions that will be going on in October, both virtual and in person, to continue to educate our participants,” Weber said.

The ve-year effort was not without challenges, including getting buy-in from TVARS’ seven-member board.

“It took a longer time and more in-depth evaluation than expected,” Weber said.

Probably the biggest challenge was persuading Fidelity, TVARS’ record keeper, to build out the platform to support BlackRock’s new investment option. Fidelity agreed to move forward once other large Fidelity clients, including Adventist Healthcare Retirement Plans — another Excellence & Innovation Award winner — also decided to implement the BlackRock LifePath Paycheck target-date fund.

“It was a bit out of our hands and relied upon a long-term partnership that we’ve had with both of those outside entities,” Meigs said, referring to Fidelity and BlackRock.

“It couldn’t have happened without Fidelity’s partnership to set up a platform to make this offering available,” he said.  n

Rose Murtaugh International Motors

Retirement readiness saw big jump after re-enrollment push

Stephanie Paulson U.S. Venture

No one was more pleased — or surprised — with the outcome of a 401(k) plan re-enrollment campaign than Rose Murtaugh, associate director of pensions for truck manufacturer International Motors.

The company more than doubled the number of employees on track to cover 75% or more of their income in retirement simply by re-enrolling them in the company’s $1.5 billion 401(k) plan.

Before the campaign, only 14.1% of the plan’s 7,600 participants were on track to meet the 75% income replacement metric. After the re-enrollment, the percentage jumped to 32%.

While the rising stock market accounted for about 25% of the increase, the “other 75% was the re-enrollment,” said Murtaugh, the winner of an Excellence and Innovation award.

As part of the campaign, employees contributing less than 6% to the 401(k) plan were re-enrolled at the default savings rate of 6%, a move designed to maximize the company’s employer matching contribution.

The company matches 50 cents for every dollar employees contribute to the plan, up to 6% of pay.

In addition to automatically boosting their deferral rate, International Motors also enrolled

them in auto-escalation, meaning their deferral rate would automatically increase by one percentage point a year, up to 15% of pay.

Employees contributing 6% or more were re-enrolled at their current savings rate with auto-escalation activated on their behalf.

The auto-escalation for employees saving at 6% was “very important” because many of them had taken no action to boost their savings since they were rst hired, Murtaugh said.

“They stayed at 6% all these years,” she said.

Murtaugh added that the company only had a “handful of complaints” from employees over the re-enrollment.

“As long as they know that they can opt out of it, a lot of people of people are willing to just try it,” Murtaugh said.

Murtaugh recalled a bene ts administrator who declared that she was not going to opt out of the higher savings level and the auto escalation into which she was defaulted, saying she “was going to see if she can handle it.”

“They’re great tools,” Murtaugh said of automated plan features. “As long as you communicate them and employees know they can opt out, there’s not too much noise about it.”

International Motors also changed the vesting schedule on the employer match, making

employees immediately vested rather than having to wait ve years to get the full amount of the match.

“I see it as sort of a ful llment of the contract between the company and the employee,” Murtaugh said. “When employees contribute, the match should have no restraints.”

Lastly, International Motors added a true-up contribution, a measure that helped further boost employee retirement preparedness.

Murtaugh explained that the true-up contribution was designed for employees who can’t contribute the full 6% consistently throughout the year. An employee might, for example, contribute 3% for the rst six months of the year and then switch to 9% for the remainder of the year. While such an employee has indeed contributed the required 6%, he or she would not get the full 50% match on 6% because he or she was just contributing 3% for half the year.

The true-up contribution would settle the difference between the full match and the actual employer matching contributions made during the calendar year.

For Murtaugh, the true-up contribution boils down to the match commitment the company made. “You contribute, we contribute,” she said. “We should take all the other conditions off that match contribution.”  n

‘Auto-boost’ feature increased max match to 90% of employees

Retirement plan savers with low deferral rates might not appreciate having their rates automatically increased, but energy products distributor U.S. Venture did just that and hardly got any complaints.

The company crafted a multipronged communications program that explained what it was doing and what employees might expect, a move that helped mute any potential criticism, said Stephanie Paulson, vice president of total rewards at U.S. Venture and a winner of an Excellence & Innovation Award.

“We maybe got two or three calls out of 4,600 employees,” she said.  U.S. Venture matches 100% on the rst 2% that employees put into their 401(k) accounts plus 50% on the next 4% they put in. The company was looking to get employees to contribute 6% of their pay to get the maximum 4% employer contribution.

To do so, the company automatically increased the deferral rates of those contributing less than 6% to 6%, giving them the option to opt out of the increase.

“It seems like it’s de nitely bene ting the vast majority,” Paulson said of the company’s new “auto boost” plan feature. “We

continue to be thoughtful in how we communicate to make sure that those three who complain turn into zero, but you don’t always hit everybody with communication.”

As a result of the “auto boost,” 85 additional savers are contributing 6% or more to the plan on a pretax basis, bringing the percentage of people maximizing the match to 90%. The industry average is 69%, Paulson said.

The company, however, didn’t stop with those contributing less than the 6% needed to get the full company match. It also targeted employees contributing 6% or more by enrolling them in automatic escalation, a feature that increased their deferral rate by 1 percentage point a year, up to 15%.

The deferral rate auto-boost for undersavers and the auto escalation were part of a suite of auto features that was implemented to improve participation and deferral rates in the company’s $368 million 401(k) plan, Paulson said.

The company also automatically enrolled all employees in the plan and re-enrolled those who had previously opted out, moves that helped drive plan participation and average deferral rates, according to Paulson.

At the end of 2023, the plan had

a participation rate of 93%, greater than the industry average of 83%.

“I am proud of the fact that we continue to see high numbers of team members continue to

participate in our 401(k) plan,” Paulson said. “I think having 90-plus percent in the plan just shows that the nancial education and the communication we’re

doing is helping our team members understand that it is good for them to think about their retirement and their nancial savings.” n

Indiana University Health

Auto escalation helped address racial disparities in readiness

Many employers add auto escalation to their 401(k) plans but Indiana University Health took it one step further: The nonpro t healthcare system studied different employee population groups to assess racial disparities in retirement readiness, an effort that not only justi ed the auto-escalation measure but also won IU Health an Excellence & Innovation Award.

“When we started looking through that lens of disparity in retirement outcomes, we found some disturbing but also really good information,” said Josh Rabuck, chief investment of cer of IU Health and one of the winners of the team award.

The data showed that the system’s American Indian, Paci c Islander and Black American populations lagged the average employee in retirement readiness, a metric that measures an individual’s ability to replace 75% of projected income at age 65 through anticipated life expectancy. Only 75% of Black Americans, for example, were on track to achieve retirement readiness, four percentage points behind the 79% of the overall population that was on track.

With auto escalation, the disadvantaged groups would get more of a bump in their retirement readiness than the workforce would get as a whole, Rabuck said.

For example, Black Americans would improve their retirement readiness by 4 percentage points, whereas the total workforce would get a boost of approximately 3 percentage points.

“This feature would get 4% more of our Black, or African-American teammates over the retirement readiness goal line vs. the 3%

Unum Group

improvement for the overall population,” Rabuck said. “Once we saw the impact that auto-escalation would have on fast-forwarding certain populations within IU Health, that was the nal push that said this makes total sense to do this,” Rabuck said.

IU Health implemented an auto-escalation feature that automatically increased employee deferral rates by one percentage point annually, up to 12%.

The team also looked at disparities within different divisions and found even greater

inequalities.

Of the 10 divisions evaluated, some had workforces that were less than 70% retirement ready.

With auto escalation, these divisions would improve their retirement readiness, with one division expected to “get 6% more teammates across the retirement readiness goal line,” Rabuck said.

Despite the strong numbers, some members of the retirement plan committee were still skeptical of the auto-escalation measure, saying plan participants who lived paycheck to paycheck would object.

Their reservations, however, subsided as committee members learned that the auto escalation would occur at the same time that employees received their annual pay increases, a move that would “take the sting out” of the higher deferral rates, Rabuck said.

The retirement plan committee also drew comfort from the fact that participants could always opt out.

“Participants can always shut that off if they want to,” Rabuck said, referring to auto escalation.

It’s still too early for IU Health to track the impact of auto escalation on workforce retirement readiness as the feature was only implemented in July, but one indicator seems promising.

Opt-outs have been low, at less than 14%, Rabuck said.

Participants also haven’t complained, providing IU Health with another hopeful sign.

“It’s been quiet, which I think means it’s a good thing,” Rabuck said.   

Emergency savings accounts a big hit with worried employees

When Unum Group discovered that the majority of its non-highly compensated employees worried about not having emergency savings, the company got to work: It made emergency savings accounts linked to its $2.5 billion 401(k) plan available to employees.  Since the emergency savings program went live in 2022, more than 800 employees have enrolled in the program, each amassing an average of $1,500 in emergency savings.

“We knew that our employees were struggling,” said Ben Roberge, assistant vice president of nancial wellbeing and retirement programs at Unum and the leader of a team that won an Excellence & Innovation Award. “We had a strong retirement savings program in place and a competitive employer match, but we knew we needed something that was a little bit more immediate that would help our employees.”

Roberge explained that a workplace well-being survey showed that nancial stress dominated three of employees’ top ve concerns.

While employees initially enrolled in the program on a voluntary basis, all newly hired employees are now automatically enrolled in the program if they earn less than $150,000 a year, a practice that started in April 2023. All new hires are enrolled at a 1% post-tax savings rate, which employees can increase to as much as 50%, provided the amount doesn’t exceed $10,000 annually. Employees can opt out of the program at any time.   Employees can select any investment within the company’s 401(k) plan for emergency savings, but if they do not make a selection and they are automatically enrolled, their emergen-

cy savings is invested in the target-date fund used as the 401(k) plan default investment option, Roberge said.

Roberge added that while Unum does not provide a match on contributions made to the emergency savings accounts, it might consider doing so in the future.

Unum’s program is bolder than the in-plan emergency savings accounts under SECURE 2.0, which cap emergency savings at $2,500. The program was developed prior to the legislation coming out.

“Our program offers a little bit more exibility,” Roberge said.

Roberge is heartened by the program’s strong participation metrics.

“Over 40% of our employees are continuing to stay in and participate in the accounts,” he said, adding that they’ve collectively saved more than $1.2 million in emergency savings.

Roberge noted that even though employees are drawing money from their emergency savings accounts, 85% continue to contribute.

“They continue on a regular basis to contribute to the account, and almost 92% of them have an account balance,” he said.

Another positive is that the program has not caused employees to decrease their contributions to their 401(k) retirement savings accounts, with the average deferral rates holding steady at more than 7.7%.

Lastly, the program has had an unexpected positive impact on employee turnover.

“We are seeing that employees who are contributing to this account are turning over on a less frequent basis by about almost 40% than employees who aren’t contributing,” Roberge said.



Indiana University Health’s Josh Rabuck

Unum Group’s Ben Roberge

Highlights from an action-packed DC West conference

P&I reporters and editors were on the ground during the 2024 De ned Contribution West conference in Pasadena, Calif., which brought together top plan sponsors and distinguished DC industry executives. Here are some highlights:

DC lineups evolving in unexpected ways

Is there a place in a DC investment menu for a retirement-income product? Would a CIT provide more exibility and savings? Or should a sponsor consider adding alternative investments?

There’s never a shortage of things to consider, panelists noted during a talk on “Emerging Trends on the DC Investment Menu.”

A big difference in conversations with sponsors today, said Eric Kaplan, head of asset allocation and institutional product at Fidelity Investments, is that the focus increasingly is turning to participant outcomes.

“When you start to have that mindset, you start to think differently about what’s in the plan,’’ he said.

Products such as annuities and alternatives do come with higher costs, he acknowledged, especially when compared with a target-date fund.

“But I think when you start to transition from thinking about low cost to thinking about outcomes, there’s a lot of conversations we can have as an industry about how we can improve that for participants,” he said.

Private assets aren’t correlated, and they provide diversi cation, said Steve Ulian, managing director-dened contribution and retirement at Apollo Global Management.

“You know, 10, 15, 20 years ago, most people thought private assets were risky, and they were, because 20, 30 years ago, what was a private equity fund? It was a hedge fund or … a highly leveraged private equity fund. And public markets were considered safe because we have these big public markets. They’re transparent.”

Fast forward to today, one can make the argument that while alts can still be considered risky, there’s the growth of investment-grade credit, he said. Meanwhile, the public equity markets continue to shrink with about 10 big companies dominating the S&P.

Improving participant outcomes is the goal, said Amber Hagen, senior director, total rewards at the TaylorMade Golf Co. But plan sponsors are also on the hook for risk mitigation, compliance and keeping up with legislation.

“Maybe there’s something that we need to add in, maybe there’s something that we need to wait a little bit and see and make sure that that’s like, fully mature and ready for prime time,’’ she said.

“You’re not surprised to know I feel like we’re a little bit conservative, right? We’re in the golf space. It re ects our industry. And so we’re probably not going to be kind of on the edge on some of these things, either, but as soon as it makes sense for us, then we’re going to take action on that.’’

TaylorMade, with $205 million in DC assets, recently bumped up its auto escalation maximum to 15% from 10%, with little opt out from participants, she said. It’s also added

after-tax and in-plan Roth conversions.

Julie Tatge

Tossing of Chevron

adds more uncertainty to plans

More uncertainty affecting plan management. That’s what lawyers predicted will be the outcome of the Supreme Court’s recent tossing of “Chevron deference,” a standard set by the court in 1984 that said judges should defer to regulators when laws are ambiguous and unclear.

The tossing of Chevron deference “does not mean that every regulation is totally up for grabs,” said Elizabeth Goldberg, partner at Morgan, Lewis & Bockius, during a panel on the legal challenges for the industry.

“There are certain regulations that are still going to be entitled to some deference,” she said, referring to regulations that come into existence to provide guidance.

Uncertainty around whether regulators like the Department of Labor will have deference will “lead to a lot of uncertainty,” she said.

Brian Murray, counsel at Trucker Huss, agreed, saying that “where there’s an express grant of statutory authority, the courts are going to be a little more deferential.”

Murray pointed out that courts have long overturned regulators’ rules, citing the DOL’s controversial duciary rule. “It’s not necessarily that all of a sudden regulations that were previously being upheld will now be stricken down.”

Radha Pathak, partner at Stris & Maher, expected to see challenges to rules “where there’s an appetite for somebody to nd a plaintiff to challenge the regulation.”

“Where there’s an economic opportunity for that,” she said, there are going to be challenges.

Margarida Correia

Closing the savings gap requires new tools

The need is great for helping underserved groups prepare and save for retirement. But there are strategies plan sponsors have adopted that are making a difference.

Craig Parkin, TIAA head of retirement advice and consulting, painted the picture: More than 40% of U.S. households are expected to run out of retirement savings. Women retire with 30% less in retirement income than men. More than 50% of Black Americans may not have enough money to retire securely, while 60%

of Hispanics do not have enough to support them in retirement.

Getting over the shame of admitting that they need help, too few engage, Parkin said. “When we think about what we can do to help individuals, it really comes down to three things,” he said: plan design, such as auto enrollment and auto escalation, insights and intentionality — or diving deep into data to help identify populations at need — and education.

Sometimes communicating in unconventional ways is key to reaching those less likely to save for retirement.

Diane Chui Justen, director, city and county plan administrator for San Francisco Employees’ Retirement System, shared that SFERS frames things in terms of pennies.

“Instead of saying, I’m going to contribute 1% to my plan, you can just think of it as pennies, right? So, I want to save this penny out of this dollar, and it just makes it a little bit more tangible,” Chui Justen said.

Courtney Degen and Julie Tatge

P&I announces 2024

NextGen Leaders

This year’s NextGen Leaders were announced at the De ned Contribution West conference. The second annual NextGen Leaders program aims to educate and support high-potential talent with two to 10 years of experience at de ned contribution plans.

Congratulations to this year’s NextGen Leaders:

■ Shaveta Huynh , de ned contribution support manager at CalSTRS

■ Belinda Mitchell , bene ts di-

to Marita M. Yancey, senior director of bene ts and wellness at the University of Texas at Dallas.

It’s important for plan sponsors to use technology as a supplement, rather than rely on the technology too heavily, noted Diane Iwata, deputy director of human resources at the San Francisco Bay Area Rapid Transit District.

“You know what your hot button words are in your organization. You know what your direction is, so it still starts with the people, right? And then you’re using that technology to help you through,” Iwata said.

There’s also the issue of data protection because “with any new technology, there’s always that risk,” said Donald Fogg, senior manager, retirement plans administration at The E.W. Scripps Co.

rector at Chicago Public Schools

■ Joel Palmer , portfolio manager at Texas Municipal Retirement System

■ Serina Fi eld , program adviser for the State of California’s Savings Plus Program

■ Lillian Mancebo , manager of secure retirement participant engagement at SEIU 775 Bene ts Group

■ Ben Roberge , assistant vice president of nancial well-being and retirement programs at Unum Group

■ John Quach , human resources analyst at the County of Los Angeles Courtney Degen

DC plans have concerns about lifetime income

Cost, portability, measurements and participant interest all dominated concerns and considerations among sponsors considering or offering lifetime income options in their de ned contribution plans.

“We are still exploring,” said Michael Jabs, associate director treasury-pension for the Kraft Heinz Co. “It’s going to take time.”

Jabs added that if a plan cannot measure the impact of a lifetime income product, it’s not worth pursuing.

Having reviewed several products, “we don’t have an opinion who is better,” he said. Cost is a key factor, he added.

The comments were made during a panel discussion, “Lifetime Income Debate,” which featured comments from sponsors and providers.

Raymond Jimenez III said he wants to be sure the quality and cost of a target-date fund with a lifetime income component has the same quality and cost of a stand-alone target-date fund. Jiminez is president of Adventist HealthCare Retirement Plans.

“We don’t want to do anything that would disenfranchise participants,” he said.

Robert Steyer

It’s important for sponsors

to be aware of AI’s risks

While arti cial intelligence can be a great tool for plan sponsors, there are several risks that one should keep in mind, panelists said at a session titled, “Harnessing AI for Enhanced Participant Engagement.”

One of those risks is that AI may produce inaccurate information, and participants may “take it, run with it, and then they lose money,” according

“People are getting smarter on how to steal data, and as technology advances, that’s still going to happen, and they’re going to become more effective,” Fogg added.

Courtney Degen

Personalization more important near retirement

Personalization has become increasingly important in helping sponsors improve participants’ retirement savings, and technology has played — and will play — a bigger role, said Jessica Sclafani, vice president, global retirement strategist at T. Rowe Price, on a panel titled “Innovative Investment Paths to Improve Retirement Savings.”

The record keeper is a key player because it can provide information such as account balances and salaries.

But she said it also is important for plans to know individuals’ goals, adding that participants can engage as much or as little as they wish.

The best way for plans to emphasize personalization is when employees are approaching retirement because research shows differences among participants become larger as they approach retirement, she said.

Robert Steyer

Still

many unknowns around SECURE 2.0

SECURE 2.0, the major retirement security package that Congress passed in 2022, can be daunting to both retirement plan sponsors and savers.

However, “while SECURE 2.0 had over 90 substantive provisions, the majority of them were optional, not mandatory,” said T. Katuri Kaye, director at law rm Trucker Huss, at a session with NextGen Leaders.

Kaye also noted there are still many unknowns surrounding SECURE 2.0, since many provisions rely on federal agencies such as the IRS and Treasury Department to issue regulations.

On Oct. 7, the Treasury Department and IRS issued guidance on the provision allowing for long-term, part-time workers to contribute to their 401(k) or 403(b) plan.

Given the ambiguity, Kaye said it’s important for plan sponsors to issue frequently asked questions addressing SECURE 2.0 provisions, “because people don’t understand.” Plans can alleviate some of those fears by “clearly communicating how (SECURE 2.0’s) going to impact them,” she added.

Courtney Degen

PARTICIPANT OUTCOMES VIEWPOINT: Fidelity’s Eric Kaplan

AVOID OVERRELIANCE ON TECHNOLOGY: San Francisco Bay Area Rapid Transit District’s Diane Iwata

Ciara Cusseaux

INDEX AN D ETF MANAGERS

Assets jump 17.9%; Vanguard stays on top over BlackRock

Total assets hit $24.9 trillion on strong equity growth, but concerns over concentration risk grow

y B KATHIE O’DONNELL

Worldwide index assets under management jumped 17.9% in the year ended June 30 as Vanguard Group retained the title of world’s largest manager of internally managed index assets, a distinction it wrested from long-dominant BlackRock in 2023.

Index assets under management worldwide totaled $24.92 trillion as of June 30, up from $21.13 trillion a year earlier, Pensions & Investments’ annual survey of index managers showed. U.S. equity assets, which accounted for more than half of the total, were $13.64 trillion as June 30, up 23.4% from slightly more than $11 trillion as of June 30, 2023.

“I attribute the big jump in worldwide index assets to investors’ increasing cost awareness and the strong long-term performance of passive investing,” said Bryan Armour, director of passive strategies research for North America at Morningstar Research Services, a Morningstar subsidiary.

Morningstar research has shown that fees, which are typically lower on index products than on their active counterparts, “are the best predictor of future success,” Armour said.

“Over the past year, the stock market has performed very well, which magni ed asset growth for index funds/ETFs,” he added.

Vanguard reported $7.71 tril-

lion in total worldwide index assets managed internally as of June 30, up 19.7% from $6.44 trillion a year earlier. That eclipsed BlackRock, which reported $7.16 trillion of such assets under management as of June 30, up 15.6% from nearly $6.2 trillion as of June 30, 2023.

Prior to the year ended June 30, 2023, Vanguard hadn’t topped BlackRock when it came to internally managed index assets since the year ended June 30, 2009, which was before BlackRock completed its acquisition of Barclays Global Investors in December of that year.

“To some extent, we’re just splitting hairs between the two,” Armour said.

Both Vanguard and BlackRock have been “tremendously successful” in building the assets of their respective indexing businesses, he said.

“Asset mix played a key role in Vanguard taking the lead,” Armour said. “They have a higher proportion of assets in equities funds than BlackRock, and stocks have outperformed bonds substantially over the past decade and even more so recently.”

Over the 12 months ended June 30, the S&P 500 index returned 24.6% while the MSCI All Country World index returned 19.4%. The Bloom-berg U.S. Aggregate Bond index returned 2.6%.

“We’re grati ed that investors continue to embrace Van-

guard’s approach to investing and entrust us to help grow their assets,” a Vanguard spokesman replied in an email when asked what has enabled Vanguard to retain its lead over BlackRock when it comes to managing index assets.

For Vanguard, “asset growth is not our objective, it’s simply an outcome of serving our clients and helping them improve their investment outcomes,” the spokesman said.

In a statement, BlackRock said the “breadth and capabilities” across its investment platform enable it “to provide the right products and solutions in the right way to meet our clients' needs, wherever they are.”

Concentration risk

Based on Oct. 21 closing prices, the Magnif-

icent 7 companies — Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla — accounted for 31% of the total market capitalization for the S&P 500, according to FactSet Research Systems data.

Concentration risk remains a concern for investors, according to John Delaney, senior director of investments and a portfolio manager at Willis Towers Watson, which provides advice as well as outsourced chief investment of cer solutions to asset owners across the globe.

Faced with that concern, the asset owners WTW serves have taken “a variety of different approaches,” according to Delaney, who said WTW’s clients include corporate de ned ben-

Growth of index assets

Total assets hit almost $9.4 trillion, an increase of 118% over the past 5 years

KATHIE O’DONNELL

Worldwide index assets managed in ETFs or exchange-traded notes rose 23.9% during the year ended June 30 as BlackRock, the world’s largest manager of index ETF assets, widened its lead over Vanguard, its nearest competitor.

As of June 30, worldwide index assets managed internally in ETFs/ ETNs totaled nearly $9.4 trillion, up from $7.58 trillion as of June 30, 2023, Pensions & Investments’ annual survey of index managers showed. That $9.4 trillion marked a 118% increase from ve years earlier, when assets managed in ETFs/ETNs totaled $4.31 trillion, according to the survey.

One factor propelling the growth of both index and actively managed ETFs has been a shift in the way many institutional investors view ETFs, according to Dana Martin, a managing director at WallachBeth Capital, a provider of institutional execution services. Martin joined the rm in 2009.

“Early days with institutions, we weren’t going in waving the WallachBeth ag saying, ‘Hey, we’re the best traders,’” Martin said, adding that instead those early conversations centered around educating institutions about what an ETF was, how it works and how they could use ETFs in their portfolios.

“We kind of were like Google going to sell the internet, and then if they use the internet, they will use us,” he said, adding that like many things in life, when it comes to institutional investors and ETFs, “it’s a lot of education.”

While in the early days many institutional investors viewed ETFs as “kind of a retail product,” attitudes have changed, said Martin, who works with pension funds, insurers and other institutional clients to navigate the complexities of ETF trading.

“I think that’s why you’ve seen such a huge jump in the assets that ETFs have, a lot of that is institutional, and it’s for a lot of reasons, but mostly it’s they don’t see it as … a retail product, they see it as ‘Hey, this is an institutional tool,’” Martin said.  WallachBeth serves hundreds of institutions across the U.S., Canada, Europe, Latin America and South America, according to a spokesman for the rm.

BlackRock keeps crown

BlackRock managed $3.86 trillion in ETFs as of June 30, up 19.9% from a year earlier, the survey showed. Vanguard ranked a distant second with $2.65 trillion, but was up 24.5% for the year. State Street Global Advisors ranked third, with $1.38 trillion as of June 30, up 23.1%.

BlackRock is “committed to creating new, innovative products that expand the world of investing for our

The largest index managers

clients,” it said in a statement provided by a spokeswoman.

“Over the past year our iShares platform launched the world’s largest bitcoin and Ethereum ETPs, introduced our max buffer ETF lineup, expanded our active ETF range and surpassed $1 trillion in our bond ETF assets,” the statement said.

At Invesco, which ranked as the fourth-largest ETF index manager with $643.8 billion as of June 30, up 38.5% from a year earlier, the number of ETF educational sessions it has done with institutional investment consultants is “off the charts” this year, said Emily McKinley, head of institutional specialists, ETFs and models.

While she declined to name speci c consultants, “almost every single one of the top ones have reached out,” McKinley said

“The investment consultants are really brushing up on ETFs and typically that tends to be because their clients are asking,” she said, adding that “without question” Invesco has seen “much more interest” from investment consultants than last year.

“Whereas last year they might be turning down meetings … this year we’re being sort of proactively sought out,” she said.

McKinley said she suspects that brisk ows into U.S. ETFs this year is one factor helping to boost interest in ETFs among the institutional clients those consultants serve.

The global ETF industry attracted $164.7 billion of net in ows in September, bringing year-to-date net in ows to a record $1.24 trillion, ETFGI, an independent research and consultancy rm, said in an Oct. 24 news release.

“Secondly, ETFs as a category have been in the news quite a lot with just the innovation, particularly around things like ... crypto, derivative income, active,” McKinley said.

Institutional investors such as pension funds have access to “every vehicle out there,” she said.

“And so, for them to use an ETF, it has to make sense,” McKinley said.

“It has to make sense both from (an) exposure standpoint, and it has to

The largest managers of total index assets

The largest managers of index assets by plan type

e t and de ned contribution plans, endowments, foundations and other institutional asset pools, as well as wealth distribution channels.

“As you might imagine, there are some investors that reviewed the scenario and decided to stay passive,” he said, adding that other asset owners "have decided to shift some portion of their passive exposure into actively managed funds" to address concentration risk.

In addition to those two approaches, Delaney said some other asset owners have gravitated toward a more “hybrid” approach by incorporating into their portfolios passive exposures designed to remove some of the concentration risk, such as products tracking customized or equal-weighted indexes or indexes that screen for certain characteristics, he said.

Delaney declined to name any speci c clients that have cited concentration concerns in discussions with WTW. He also declined to name any index providers or products that may have bene ted from investor concern about concentration risk.

“I think those conversations are going to continue and investors will likely make a variety of decisions based on their own circumstances and what they believe is the right way to go,” he said.

Delaney added, however, that looking ahead, he expects that the hybrid approach of using a type of passive vehicle that can mitigate concentration risk will become a “larger, more prevalent solution.”

“We have done a ton of research on equalweight,” said Anu Ganti, senior director and head of U.S. index investment strategy at S&P Dow Jones Indices, an S&P Global division that is home to nancial market indicators including the S&P 500 index and the Dow Jones Industrial Average.

“There’s so many different ways to measure concentration and we’ve looked at it in numerous ways and what we’ve found historically is that equal weight has tended to outperform after peaks in concentration,” she said in an interview.

That’s why looking at equal-weight strategies now is so timely, Ganti said.

“In the seat that we’re in right now, nobody really knows when that peak is going to happen,” she said.

Growth in indexing

Another topic S&P Dow Jones Indices has done plenty of research on is the growth of indexing and what’s driving it, according to Ganti, who pointed to a November 2022 report she co-authored titled “Shooting the Messenger.”

“The growth of indexing has been driven by the inability of active managers, in aggregate, to outperform passive benchmarks,” the report

said, adding that passive management’s rise is the result of active performance shortfalls that can be attributed to three factors.

“No. 1 is cost,” Ganti said during the interview. “Fees are super important within the indexing space, and we’ve generally seen that active managers tend to have higher fees than that of passive, so that’s been a big driver of the growth of indexing.”

Another factor is “just the professionalization of the industry,” she said. The 1970s marked a key turning point in terms of the professionalization of the investment management industry, Ganti said. “As professionals are now competing against professionals, it has become more dif cult for active managers to outperform, as investment management is a zero-sum game, with no natural source of outperformance or alpha,” she said.

The third factor, which tends to be underappreciated, is “the positive skewness of equity returns,” Ganti said.

“And what I mean by that is that outperformance tends to come from a few stocks over the long term,” she said.

Consequently, “it really makes the case for a broad-based diversi ed approach, which indices offer,” Ganti said.

“We tend to see that if active managers are holding a more concentrated portfolio with fewer stocks, then that can hinder them,” she said.

According to S&P Dow Jones Indices’ SPIVA Global Scorecard report for midyear 2024, 57% of all active large-cap U.S. equity managers underperformed the S&P 500 in the rst half of this year.

Active management is dif cult and consistent outperformance is usually eeting, according to S&P Dow Jones Indices’ U.S. Persistence Scorecard for year-end 2023. The report showed that of 529 top-quartile funds in the all domestic funds category as of December 2019, not a single one of those active equity funds remained in the top quartile as of December 2023. 

The largest managers of ETF/ETN assets

Worldwide assets managed internally, in millions, as of June 30. Assets include passive and enhanced strategies.

make sense from a vehicle standpoint.”

Institutional use of ETFs

Broadly speaking, there are three key reasons why institutions use ETFs, McKinley said. The rst reason is access, she said, adding that ETFs can offer institutions on-exchange access to “illiquid, opaque, in some cases stressed markets or expensive markets.” She cited senior bank loans, collateralized loan obligations, emerging market debt and high yield debt as some examples.

The second reason is “just pure speed to market,” she said. Over the past 18 months or so, Invesco has had a couple of pension fund clients “who have explicitly told us they’re using an ETF because they don’t want to go through an RFP process,” said McKinley, who declined to provide client names.

A third reason is “using ETFs for tactical expression,” she said.

“Especially in 2024, we have seen just a lot ... of clients thinking about how to use ETFs in a more tactical fashion,” McKinley said, adding that, in particular, clients have been seeking ways to position around U.S. equity market concentration. “I mean the (Magni cent) 7 market concentration, that’s something that everybody has on their minds.”

Based on Oct. 21 closing prices, the Magnificent 7 companies — Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla — accounted for 31% of the total market capitalization for the S&P 500, according to FactSet Research Systems data.

“We have seen a lot of clients use ETFs — and in particular our ETFs — to position around that,” she said.

The Invesco ETFs that have seen the big-

gest in ows so far in 2024 are the Invesco QQQ Trust, Series 1, known by the ticker symbol QQQ; the Invesco NASDAQ 100 ETF, known by the ticker QQQM; and the Invesco S&P 500 Equal Weight ETF, which has RSP as its ticker, McKinley said.

QQQ and QQQM both track the Nasdaq-100 index. RSP is designed to help investors eliminate concentration risk in the S&P 500, according to Invesco’s website. Institutional investors — including a number of U.S.-based endowments and foundations as well as nonU.S. insurers and pensions — have been “very big holders and traders … both in and out of those funds over the past year," McKinley said. Those two exposures — the Nasdaq-100 index and the S&P 500 Equal Weight index — “combine in a really unique way,” she said. The combination allows investors to mitigate U.S. equity market concentration while also providing exposure to the market’s most innovative companies, McKinley said.

QQQ has seen net in ows totaling $17.4 billion in 2024 through Oct. 11. QQQM was next with $11.3 billion followed by RSP with $8.7 billion, according to Invesco data.

Concern over equity market concentration risk has boosted interest in equal weight ETFs among WallachBeth’s clients, Martin said, noting, however, that the rm doesn’t offer investment advice.

“You have seven names that have kind of dictated a lot of what the market has done,” he said. “I think it gets to a point where, you know, how much further does that go?”

As investors look toward equal-weight products, RSP, which has been around for a while, is among the ETFs getting investor attention these days, he said.

“I’m sure there’s people at Invesco who were selling RSP 10 years ago, ve years ago and being like, ‘What am I doing here,’” Martin said, adding that now, however, “it’s having a lot of … success.” 

CONCENTRATION RISK CONCERNS: Willis Towers Watson’s John Delaney

Nicole Delaney

and wealthy Americans.

The vice president supports a billionaire’s minimum tax, but her campaign declined to say if she supports the speci c parameters of the minimum tax on billionaires included in Biden’s annual budget request to Congress, which would apply a 25% minimum levy to income of those with at least $100 million in assets, according to Bloomberg.

On capital gains, Harris has called for raising the tax rate to 28% from 20% for households making over $1 million a year, which is less than the 39.6% that Biden has endorsed. She has also proposed increasing the stock buyback tax to 4% from 1% and raising the corporate tax rate to 28% from 21%.

Trump on the other hand, has no plans to raise tax rates on capital gains or stock buybacks and said he would further cut the corporate tax rate to 15%. In the 2017 tax bill, Republicans cut the corporate rate to 21% from 35%.

Tariffs

Trump has suggested establishing a universal baseline tariff on all U.S. imports ranging from 10% to 20% and a 60% tariff on all U.S. imports from China, according to the Tax Foundation.

In recent weeks, he’s also oated replacing the federal income tax with proceeds from tariffs, though hasn’t provided speci cs.

And in September, Trump backed the creation of a U.S. sovereign wealth fund to pay for infrastructure projects and reduce the national debt that would be backed by tariffs.

Some experts, including at the Tax Foundation, worry the proposed tariffs would raise taxes on U.S. imports, increase in ation and burden consumers and unprotected industries with higher taxes and lower incomes.

Social Security

Both Harris and Trump have vowed to protect Social Security, but neither has released a detailed plan for the program’s future. The Social Security trust fund for retirees and their families faces a depletion deadline of 2033, at which point the fund's income could only pay 79% of its scheduled bene ts, according to the Social Security Board of Trustees’ annual report released in May.

Trump, of note, has oated eliminating taxation of Social Security bene ts.

But an analysis from the Committee for a Responsible Budget found that policies such as that and expanded deportations would widen Social Security’s funding de cits and advance the trust fund’s insolvency by three years.

DC alts

CONTINUED FROM PAGE 11

plan sponsor must address some operational questions. Is daily valuation required? If so, what proxies will be used? Does the sponsor want to provide for those aspects itself or does the sponsor want individual alternative asset managers to provide them? Does the plan sponsor want to have a custom target-date fund within

ESG at the DOL

On the regulatory front, sources largely expect a Harris administration’s Department of Labor to continue the work of the Biden administration, defending key rules in court and implementing provisions from SECURE 2.0, a retirement security bill Congress passed in 2022.

A second Trump administration, however, would bring major changes to the department’s Employee Bene ts Security Administration, sources said.

Notably, the biggest Harris-Trump difference involving the Employee Retirement Income Security Act involves environmental social and governance investing. But while the debate around ESG is erce, the election outcome will impact much more than that, according to Bradford P. Campbell, a partner at law rm Faegre Drinker Biddle & Reath and former assistant secretary of labor for EBSA during President George W. Bush's administration.

“While ESG is the ashpoint … the regulation itself is bigger,” Campbell said. “It’s actually the regulation that governs how ERISA duciaries make investment decisions. So it’s not just, ‘Do we pick ESG and if so, how?’ It’s actually, ‘What is the test for making investment decisions?’”

In 2022, the Labor Department nalized a rule permitting ERISA duciaries to consider ESG factors when making investment decisions. The rule also maintains the department's position that duciaries may not sacri ce investment returns or assume greater investment risks as a means of promoting collateral social policy goals.

The rule came after two rules promulgated late in the Trump administration that said retirement plan

which these items are addressed?

Or does the plan sponsor wish to leave those issues to the target-date fund provider?

How will duciaries select benchmarks or compare to peers?

Who is a peer when, at least in the near-term future, most target-date funds do not contain alternatives?

Short-term “watch-list” rules may need adjusting (or eliminated as ineffective) to re ect the long-term private investment components of multiasset target-date funds.

The investment policy statement

duciaries could not invest in "non-pecuniary" vehicles that sacrice investment returns or take on additional risk and outlined a process a duciary must undertake when making decisions about casting a proxy vote.

“While ESG was the motivating factor, that test actually changed how every investment decision is made regardless of whether it has ESG,” Campbell said of the Trump administration rule. “I don’t think the Trump folks ever appreciated how much dislocation and litigation risk that kind of change creates.”

If Trump were to win a second term, one of the rst things his administration will try to do is “repeal the current investment factors regulation that the Biden administration put in place and return to the Trump administration’s 2020 regulation,” Campbell predicted.

The Biden administration rule is currently being challenged in court by Republican attorneys general.

Fiduciary definition

Another major topic at the Labor Department is its new duciary investment advice rule. The Retirement Security Rule, nalized in April, among other things, changed the ve-part test that determines when someone is an investment advice duciary under ERISA so that one-time advice, such as rollovers to IRAs or annuity purchases, must be in an investor’s best interest.

Amid lawsuits, two district court judges have halted the rule's implementation and who wins the election could determine how robust the government’s defense is.

A 2016 Obama-era rule that broadened the de nition of a person or entity taking on duciary respon-

should allow for appropriate investment architecture. For example, the statement should call for diversi cation but should also make clear that various investment vehicles and account types are permitted. Some alternative investment vehicles may be separately managed accounts or drawdown funds. Some IPS provisions may limit investments to “public markets” or “investment-grade” securities, and these provisions could hamstring a decision to include alternative

kets space, but a Trump administration likely wouldn’t, said Rozenblit, who founded and co-led the SEC examinations division’s private fund unit before establishing regulatory and compliance consulting rm Iron Road Partners in 2021.

In a client alert published in October, Iron Road said Republican administrations often view private fund investors as “large, sophisticated institutions capable of protecting their own interests. As a result, they may shift (the examinations division’s) focus away from private funds and towards retail products.”

SECURE 3.0

Congress in recent years has passed two major bipartisan retirement security bills and talks are underway for a third installment known as SECURE 3.0, sources said. Democrats today narrowly control the Senate while Republicans hold a slim majority in the House. Control of both chambers could ip in the upcoming election, but the majorities either way are expected to remain small.

sibilities was struck down in 2018 by a three-judge panel at the 5th U.S. Circuit Court of Appeals in New Orleans.

The Trump administration, which took of ce in January 2017, allowed the Justice Department to defend the rule before the 5th Circuit in July 2017 oral arguments, but after the panel ruled against the Labor Department the following year, the administration elected not to appeal the decision and the duciary rule died.

A similar story could play out if Trump wins, sources said.

SEC

The Securities and Exchange Commission under Chair Gary Gensler has been busy over the last three-plus years, nalizing dozens of complex rules affecting all aspects of the investing landscape.

Gensler’s term expires in 2026, but Trump has pledged to re him, and Harris would have to weigh keeping him on or seeking a new SEC chair, sources said.

Either way, the next SEC chair is more likely to slow the pace of rule-making and focus on high priority issues, like the custody framework for SEC-registered investment advisers, according to Igor Rozenblit, managing partner at Iron Road Partners and former SEC staffer.

Under Gensler, the SEC in 2023 proposed overhauling the custody framework, but the industry pushback was erce, and the agency didn’t move forward.

“I would expect a little more discretion about what moves forward and what doesn’t,” Rozenblit said of the next SEC chair.

A Harris administration would mean a continued focus for enforcement and exams on the private mar-

assets and structures. Language that focuses on “prudence” might work better than “public.”

Compliance. If you are thinking of including alternative assets in your DC plan, target-date fund, or managed account, loop in compliance early. They will have plenty of questions regarding suitability, complexity, default, menu items, fees and disclosure. All those questions can be answered but best to include compliance early in the process.

(We know: We said “ ve.” Just

Either way, SECURE 3.0 will be a discussion topic for lawmakers and their staffs. The package will likely focus on lifetime income solutions and increasing retirement plan portability, said Melissa Kahn, managing director of retirement policy for State Street Global Advisors' de ned contribution team.

While both parties are interested in a SECURE 3.0 bill, Kahn said if Democrats were to sweep control of the White House, House and Senate, the package would likely be more of a priority since Rep. Richard Neal, D-Mass., would once again lead the tax writing House Ways & Means Committee.

Neal, who has made retirement security one of his main issues, reintroduced a bill in February to require businesses with 10 or more employees that don't offer a retirement plan to automatically enroll their workers in IRAs or 401(k)-type.

That bill does not have any Republican support, but could be in play if Democrats sweep control, Kahn noted.

Added Campbell, “SECURE 3.0, while there is work going on I think in the same (bipartisan) spirit at this point, the election could theoretically change how much that’s a bipartisan exercise going forward if one party gets everything.”

Moreover, if Republicans win the White House, Senate and House, the provisions in the 2017 Tax Cut and Jobs Act that are set to expire in 2025 will almost certainly be extended, sources said.

On the legislative front, Republican lawmakers will also pass bills aimed at thwarting ESG investing.

“If we have uni ed government under Republicans, this ESG issue is likely to be a legislative as well as a regulatory issue to consider,” Campbell said.

want to make sure you are paying attention!) Remember your duciary duty. That duty is carried out when you consider the best interests of the participants. So if alternatives can mitigate risk, enhance returns, and increase diversi cation in a way that a prudent investor would do so ... then do so. n

STARK DIFFERENCES: Presidential candidates Kamala Harris and Donald Trump

Hannah Beier/Bloomberg Cornell Watson/Bloomberg

also said that moving to amend the bylaws and separate the roles “prevents the board from exercising its discretion to make the best-informed decision on a leadership structure that serves the company and its shareholders based on the relevant facts and circumstances from time to time.”

As such, the board recommended that shareholders vote against the proposal to split Fink’s role as chair and CEO — a role he’s held since founding BlackRock in 1988. An “against” vote was also recommended by proxy voting rm Glass Lewis, which said in a proxy paper April 15 that the proposal was “not in the best interests of shareholders.” Glass Lewis added: “While we are strongly supportive of boards appointing an independent chair, we believe the binding nature of this proposal does not allow the board suf cient exibility.”

A spokesperson con rmed that Fink won 87% shareholder support to retain the dual role.

A shareholder proposal to appoint an independent chair at Goldman Sachs Group — a role held by CEO David Solomon — was supported by 33% of shares present or represented by proxy at the nancial services giant’s annual general meeting in April.

Point of contention

report for U.S. annual shareholder meetings, 46 independent chair proposals were made in 2024, a signi cant decline from the 82 made in 2023’s proxy season. However, 2024’s gure aligned with that in 2022, with 45 proposals, the rm said in its report, and average support for independent chair proposals has remained consistent at 31% over the last three years.

Having the same executive in the CEO and chair roles may be for several reasons, such as longstanding CEOs who have been chairs for the entire tenure — as is the case of BlackRock’s Fink; as a reward for performance after serving initially as CEO only; or bringing executives into line with peers in the industry who have the dual title, sources said.

The preferred situation is an “independent chair, unless circumstances that are fully explained would warrant

The question over splitting a CEO and chair role remains a contentious one among some industry participants, and has been on the agenda for shareholders for decades, sources said.

“There’s been an evolution in governance over the last 25 years or so on many issues, including independent board leadership,” said Bob McCormick, executive director at the Council of Institutional Investors — a nonpro t, U.S.based corporate governance advocacy organization focused on long-term asset owners and institutional investors. “The U.K. is often the leader in many respects and concepts, such as having an independent chair. There’s been a slower uptake in the U.S., but continued interest in what is the right board leadership structure.”

According to shareholder engagement and governance consulting services rm Georgeson’s proxy season

an opportunity. The fund has used its extra capacity for engagement to enter into dialogue with key players in the automotive sector, such as in June ling a motion for Japanese carmaker Toyota to disclose its climate-related lobbying activities.

“Engaging with the automotive sector is quite important to us and will likely continue into next year,” Schelde said.

“When it comes to aerospace and defense there’s also debate within our fund, as to whether we have the right approach there. We have excluded more than half of the companies in the aerospace sector so far, and I think this is an issue that will probably continue (to occupy the fund’s executives), given how the world is right now.”

Currently, around 0.6% of of the

overly complicated if the CEO is also the chair,” McCormick concluded.

Independent oversight

A board of directors is put in place to protect insights by overseeing management, Spurr said. “The best way to execute this is through a board that is led by an independent chair. When the roles of chair and CEO are combined, this presents a fundamental con ict of interest, whereby the body that is responsible for overseeing management is also led by management.”

Some companies may put in place a lead independent director as a counterweight to having a combined CEO and chair. While dual roles have been on shareholders’ radars for many years, “what has changed is companies’ appointment of robust lead independent directors … that shows shareholders that there is a strong, independent voice leading the board even though they don’t have the chair title,” McCormick said.

‘There’s been a slower uptake (in independent board leadership) in the U.S., but continued interest in what is the right board leadership structure .’

COUNCIL OF INSTITUTIONAL INVESTORS’ BOB M c CORMICK

having the roles combined. I’ve always felt they are two different roles with two different titles so it’s natural they would be held by two different people, except in limited circumstances,” McCormick added.

Andrew Spurr, manager, stewardship at Morningstar Sustainalytics, said the preference for an independent leader of portfolio company boards “has been a fairly standard inclusion in the proxy voting/corporate governance guidelines of asset managers and asset owners for some time. Ultimately, the separation of the roles and the appointment of an independent board chair is seen as a governance best practice, and I don’t see this changing. The substantial number of shareholder proposals on the topic and the generally high support levels that these proposals achieve indicates that this is a topic that investors continue to focus on,” Spurr said.

The CII’s perspective is that companies should have “strong, independent leaders that shareholders can engage with, to set agenda items, organize meetings of the board, ensure independent oversight of management, and ultimately hire or dismiss the CEO. It can become

AkademikerPension listed equity portfolio and 0.4% of the credit portfolio is made up of holdings in the aerospace and defense sector.

Changes at the top Schelde has also seen his own role at AkademikerPension undergo a shift. He was appointed as CIO in 2017, then held a dual role acting as chief nancial of cer since 2022, sharing oversight of the pension fund with CEO Holst. Recently, the two of them found the level of responsibility was “putting too much on our plates,” according to Schelde, and he has as of October reverted to a sole CIO position.

At the start of October, as Schelde dropped the CFO role (which currently remains vacant), AkademikerPension also changed its leadership team to consist of eight people. As well as Schelde and Holst, this includes six other executives who share responsibilities in areas such as information technology, human

Alternatives

KKR sees entry into 401(k) plans through targetdate offerings

y B ARLEEN JACOBIUS

KKR & Co. executives see a big opportunity managing capital in 401(k) plans, they said during the rm’s Oct. 24 earnings call.

In that case, a description of that lead independent director role is needed to inform shareholders and make sure they fully understand what authority and responsibility the director has vs. the CEO and chair.

BlackRock’s lead independent director, Murry S. Gerber, has been in the position since 2017, and his role and responsibilities are explained in detail in the 2024 proxy statement and on the manager’s website.

Morningstar’s Spurr said the rm does not believe, however, that a lead independent director “is the same as having an independent board chair. In addition, the ever-increasing demands made on boards under federal securities laws, national stock exchange rules and other federal and state regulations means that the separation of the positions allows the chair to focus on management of board matters and allows the CEO to focus on managing the business,” he said.

Spurr and Morningstar don’t see much change in terms of companies being receptive to splitting the CEO and chair roles. “Based on the statements of opposition that companies provide in their proxy statements in response to shareholder proposals on the topic, I would say no, (companies are not increasingly receptive.) Boards continue to point to the need for exibility to determine the leadership structure that is best for the company,” he said. n

resources, and nance.

Linda Ankerstjerne will become chief consultant for the area of politics and partnerships, while Kennett Ambæk Rafn moves from his position as head of member services.

“(The changes) will enable me to spend more time with the investment department, and I’m really looking forward to that,” Schelde said.

2025 outlook

Schelde must reckon with the many conundrums facing institutional investors today. As well as AkademikerPension’s evolving ESG priorities, the fund’s portfolio allocations also may be shifting .

“We have been building out our exposure to unlisted assets in the last couple of years, and are now trying to build up more exposure to the local real estate market, where we currently have a rather limited exposure for a fund of our type.

“We’re also looking to bring up

KKR reported $624 billion in assets under management, up 18% year over year. KKR manages $14 billion in its K-Series suite of products, which are designed for individual investors, up from $5 billion, a year ago, Craig Larson, a partner and head of investor relations, said during the earnings call.

The majority of new dollars going into 401(k) plans are going through target date funds, which is where KKR executives expect private market assets will be rst introduced, Larson said.

“I believe that percentage is north of 60%, and we’ve talked to some participants who’ve indicated that percentage is actually well north of 60%,” he said. “And at the same time, you probably won’t be surprised to hear that we think there’s a lot of industrial logic to introducing alternative strategies into target-based strategies as individuals invest behind their continued retirement.”

KKR’s largest business by AUM as of Sept. 30 was credit and liquid strategies with $271.4 billion, up 3% from three months earlier and an 18% increase from $229.4 billion from a year earlier. KKR’s private equity business was its second largest with $190.2 billion at the end of the third quarter, up 3% from the end of the prior quarter and up 9.6% from the end of the year-earlier quarter.

Real assets had $162.8 billion in AUM as of Sept. 30, up 7.5% from June 30 and a 31% increase from Sept. 30, 2023.

In the third quarter, KKR closed on a $3 billion real asset strategic partnership with a large sovereign wealth fund, “which we expect will positively impact both our infrastructure and real estate platforms for two-plus decades,” said Robert Lewin, KKR’s chief nancial of cer, during the call.

Indeed, KKR executives are “leaning in” to real estate equity, said Scott Nuttall, KKR’s co-CEO, during the call.

“Part of the reason that we’ve leaned in so much this year ... is our view that the bottom was behind us. And I think that perspective is starting to be shared by others,” Nuptall said. He said he thinks there is an emerging perspective that this is a good time to invest in real estate. n

our exposure to climate-related infrastructure. However, this is also sector that is facing some signi cant headwinds. Of course, that also creates opportunities, but that also makes it a little more dif cult to deploy capital than before,” he said.

Within unlisted assets, currently 7.4% of the AkademikerPension portfolio is dedicated towards climate infrastructure, with a 2030 target of 9.5%. Current domestic real estate holdings are 1.8%, with a 2030 target of 5%.

There is also the ever-pressing matter of how best to maintain returns and ensure a healthy retirement for its workers, in AkademikerPension’s case made up of Denmark’s academics, employed across high schools and colleges.

AkademikerPension has also launched a “life cycle product,” signaling a shift from a de ned bene t pension for participants over to a de ned contribution plan — a phenomenon underway across main-

land Europe. The AkademikerPension DB product has been closed for new members since 2017, and since then all new participants have been entered into the DC product, initially with both products invested through the same low/medium risk portfolio. DC members were rst given the option to adopt the higher risk life cycle product in 2023. In the coming years, the fund will focus on converting further DB members to the new life cycle product where it is deemed that it is to the bene t of the speci c participant.

“Currently, only 2% of our participants are in the life cycle product. So we have to run a process with participants, to show the bene ts — especially for younger participants — of moving to the new product and gaining a larger exposure to listed equities. Over the coming years, this shift (toward equities) is going to lead to the biggest change in our aggregated portfolio,” he said.

REAL ESTATE IS BACK: KKR’s Scott Nuttall

OCIO for Nonprofits and Healthcare: Aligning Goals

Wednesday, November 6 | 2:00 pm ET

Endowments and foundations as well as healthcare organizations have multiple portfolio objectives that they need to meet, including spending, liquidity and total-return targets. Many pursue a dynamic and multi-asset investment approach that serves diverse pools of capital—long-term operating portfolios, retirement assets, insurance assets, and foundation funds. What’s behind the burgeoning demand in OCIO services by these institutions? How are OCIO providers delivering customized investment management that aligns with their di erent goals and operating requirements? Specialized mandates for sustainable investing, private markets and other alternatives have grown, while fees and benchmarking considerations have evolved. This webinar discusses how OCIO providers are helping nonprofits and healthcare organizations to articulate and meet their strategic investment objectives, enhance their overall risk-return profile, and provide additional services ranging from education to implementation services.

REGISTER | pionline.com/OCIO-nonprofits-healthcare-webinar24

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CLOs: A Timely Diversifier

Tuesday, November 12 | 2:00 pm ET

As institutional allocators broaden their fixed income allocations, many are taking a closer look at collateralized loan obligations — securitized portfolios of floating-rate, senior-secured corporate loans — that have seen record issuance. CLOs look compelling for many reasons: higher yields and spreads versus traditional fixed income, attractive risk-adjusted returns and structural protections against default risk.

But it can be challenging to grasp the key drivers and nature of CLO tranche investing. Senior tranches may o er protection from default risk, yet still face potential spread and downgrade risks. Are CLO equity tranches a viable alternative for some investors? What will the higher-for-longer rate scenario have on the CLO market? Active management and the manager’s experience through the market cycle can be crucial in navigating this asset class. Our expert panel takes a deep dive into the CLO market to share a forward view on the supply/demand drivers and the knock-on e ects for investors, indicators to watch, sector performance, and more.

REGISTER | pionline.com/CLOs-webinar24

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Real Assets: A Ballast in Uncertain Markets

Wednesday, November 20 | 2:00 pm ET

It’s an opportune time to invest in real assets, which have long delivered institutional portfolio benefits such as diversification, inflation hedging and income generation across all types of market environments. Today, though, allocators need to pursue an active, layered approach to navigate the di erent segments, from real estate and infrastructure to natural resources, and even the sub-segments within each of them. How can investors tap into the evolving dynamics of the commercial real estate markets? Which secular forces underpin more than one asset in a multistrategy allocation? What are the implications of the Fed’s rate policy and macro developments on real assets long-term outlook?

Industry experts will give you a broad overview of the structural drivers of real assets and also take deeper dive into di erent segments that are attracting institutional interest today, notably commercial mortgage lending, global listed infrastructure, and natural resource equities.

REGISTER | pionline.com/real-assets-webinar24

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Treasurers

CONTINUED FROM PAGE 1

consultant, promises to “use his economic know-how to expand our capacity for investment,” according to his campaign website.

He speci cally criticizes NCRS, contending that the state is “leaving growth on the table, with a larger portion of our pension fund sitting in cash than any comparable state.”

As of March 31, NCRS’ actual asset allocation was 39.6% public equity; 27.6% investment-grade xed income and cash; 8.2% pension cash; 6.1% opportunistic xed income; 5.1% core real estate; 5% private equity; 4.6% in ation-sensitive assets; 2.1% multistrategy portfolio and 1.7% non-core real estate.

The pension fund returned a net 8.2% for the scal year ended June 30, falling below its policy benchmark of 10.5% for the period.

Briner’s campaign website outlines a detailed plan for reforming the retirement system, which he says is underperforming compared to similar-sized plans in other states. Briner, who holds an MBA from Harvard Business School, recommends two major changes: a restructuring of its governance and an overhaul of investment strategy.

North Carolina is one of only three states that has the “sole trustee” model for their pension fund, which Briner says should be changed.

“As a general matter, small groups make better investment decisions than solo actors,” Briner states on his website. “That is why successful private sector investment rms have investment committees and why state pension plans have almost all followed suit.”

The Republican candidate cites a 2014 study commissioned by the state treasurer’s of ce which recommended switching to a board of trustees model as well. Briner himself is a member of the board of trustees at the University of North Carolina at Chapel Hill and Phillips Exeter Academy, as well as a board member for the Boston Omaha Corp.

Harris feels the sole trustee model makes the treasurer “accountable to the people, elected by the people. If the people do not like how they invest the money, they can choose somebody else,” he said in an interview with student news site The 9th Street Journal. He added that creating a board of trustees would give more power to the legislature, “and it gets super politicized.”

When it comes to investment strategy, Briner recommends shifting the pension fund’s asset allocation to focus on sectors such as real estate and traditional energy, which he said can provide better returns. He also recommends the fund engage in co-investments, invest more capital in fewer managers and reduce manager constraints.

Briner has a slogan on his campaign website that reads, “Professional Experience not Partisan Politics.” Harris says he aims to “keep the treasurer’s of ce de-politicized and focus on great returns.”

However, Briner also signals he has a negative view of ESG, stating on his website that “the ESG crowd has driven a lemming-like abandonment of sectors like (the) traditional energy sector that — like tobacco a generation ago — creates compelling returns for the non-politicized investors who remain.”

In June 2023, an anti-ESG bill be-

came law in North Carolina after Republican lawmakers voted to override Democratic Gov. Roy Cooper’s veto. The law requires the treasurer to only evaluate investments based on pecuniary factors and blocks state entities from considering ESG factors when hiring, ring or evaluating employees and awarding state contracts.

Cooper vetoed the bill as he said it limits the treasurer’s ability to make decisions in the best interest of state retirees, while Folwell was supportive.

Harris voted against the bill when it rst passed the North Carolina House and also voted against the initiative to override Cooper’s veto.

Pennsylvania

Incumbent Treasurer Stacy Garrity, a Republican, is on the Pennsylvania ballot alongside Democratic candidate Erin McClelland, a former mental health counselor, small business owner and project manager for the Allegheny County Department of Human Services.

Garrity, who rst took of ce in 2021, said she will “continue her ght for a tax-deductible 401(k)style retirement savings program for Pennsylvanians not currently covered by pensions or other retirement savings vehicles,” according to her campaign website.

In June 2023, the Pennsylvania House of Representatives passed a bill to create the Keystone Saves Program, a state-run auto IRA program for employees of companies with ve workers or more that do not currently offer a retirement plan.

The legislation would require such employers to join the program, though there would be no penalty for employers that choose not to join, and the bill speci cally states that no penalties can ever be assessed.

The bill currently awaits an uncertain future in the state Senate, where it has yet to move.

McClelland is a staunch critic of such a program, calling it a “snakeoil securities scam” and “The George W. Bush Great Recession Starter Kit” in her campaign prospectus.

“As the Pennsylvania state treasurer, I will ght to protect our workers and our taxpayers from dangerous, unregulated nancial products and scam investments like the Keystone Saves program,” McClelland states.

The Pennsylvania treasurer serves on approximately 20 boards, including those overseeing the $75.2 billion Pennsylvania Public School Employees’ Retirement System and the Pennsylvania State Employees’ Retirement System, which had a $36.4 billion de ned bene t plan and $189.4 million de ned contribution plan as of Dec. 31, 2023.

Garrity states on her website that she “took on the waste and lack of accountability at the two largest state pension funds and worked to

make certain that fees were reduced and investments earned more interest” during her time as treasurer.

Garrity also points to her support for the PA 529 College and Career Savings Program, contending that she “helped families save a total of $11 million by reducing fees and costs, while increasing participation.” The program offers two different 529 plans, with only one of the plans requiring Pennsylvania residence from the account owner or bene ciary.

Oregon

In Oregon, three candidates are vying for the role of state treasurer, as current Treasurer Tobias Read is running for secretary of state.

Democratic candidate Elizabeth Steiner is a state senator and associate professor at Oregon Health & Science University. She touts her experience serving as the state’s chief budget writer and says she “will continue to grow OPERF (the Oregon Public Employee Retirement Fund) and invest in ways that protect the pensions of hard working Oregonians,” according to her campaign website.

“We can meet our obligations to those who serve the state in such important ways while also reducing the unfunded PERS liability, which in the long-run allows us to allocate more funding to schools, road improvements, public safety, and other essential programs,” Steiner said on her website.

Steiner told The Oregon Capital Chronicle that she would speci cally invest the pension fund’s portfolio “with an eye towards long-term stability, rather than volatile short-term gains.”

The state treasurer has a seat on the Oregon Investment Council, Tigard, which oversees the investment and allocation of all the state’s trust funds, including the $94.5 billion Oregon Public Employees Retirement Fund. As of Dec. 31, 2022, OPERF had an unfunded liability of $28 billion.

Steiner also promises to “leverage the power of Oregon’s investments to build toward a net zero portfolio and push companies to adopt clean energy goals.” Before it became law, Steiner was a chief sponsor of state legislation requiring OPERF to divest up to $1 billion in coal-related holdings.

Another state senator, Brian Boquist, is running for treasurer as the Republican candidate. An Army veteran, Boquist lists three occupations on his LinkedIn besides state senator: managing partner of Powder River Cartridge Co., managing partner of ICI Cattle & Timber Co., and executive vice president of International Charter Inc.

Boquist is barred from running for senator again, due to a state law punishing lawmakers who miss 10 or more days of work. He was among a

VOTE FOR ME: North Carolina Treasurer candidates Brad Briner and Wesley Harris

group of 10 Republican senators that staged a walkout lasting six weeks in 2023, according to reporting from the Oregon Capital Chronicle.

Boquist told The Oregon Capital Chronicle that he would work to x the pensions system’s unfunded liability by making a series of changes, including reducing “closed door private equity fund” companies located outside Oregon and reducing xed income “government bond type investments” outside Oregon over time.

“We need a self-help effort to put Oregon rst,” Boquist contends, adding that “Oregon private sector housing investments should be increased via direct and depository actions,” and “ xed income investments should be done internally to address Oregon road, sewer and water infrastructure issues.”

Mary King, the candidate representing the Working Families Party, is an economist, professor and union leader, according to a news release from the party website.

She wants to “phase out the $53 billion Oregon has invested in ‘corporate raider’ private equity,” as well as “divest from fossil fuels, arms manufacturers and countries violating international law,” the news release states.

Vermont

In Vermont, incumbent Treasurer Mike Pieciak will face off against Joshua Bechhoefer, a credit analyst associate at Farm Credit East.

The treasurer is one of the commissioners on the Vermont Pension Investment Committee, which manages the investments of the $6.4 billion Vermont State Retirement Systems.

Pieciak says on his campaign website that he will work “to fully fund the state’s pension system and drive down unfunded liabilities.”

Prior to his role as treasurer, Pieciak led the state’s Department of Financial Regulation, where he worked on reforming the state’s pension funds.

“Appointed to Vermont’s Pension Task Force by the Legislature, Mike spent months working alongside lawmakers and union representatives to forge a compromise that strengthens Vermont’s pension system and reduces its unfunded liabilities by $2 billion,” Pieciak’s website states. “Passed unanimously by both the House and Senate, this proposal is now law.”

The 2022 law was aimed at boosting the Vermont State Teachers’ Retirement System and the Vermont State Employees’ Retirement System, which had funded ratios of 52.9% and 67.6%, respectively, at the end of 2021. Speci cally, the legislation called for teachers and state employees to gradually boost their contributions over a three- to veyear period and accept more modest cost-of-living adjustments, so the

Oklahoma treasurer, chief of staff sued over records connected to anti-ESG law

Oklahoma Treasurer Todd Russ and his chief of staff Jordan Harvey, along with the Of ce of the State Treasurer, have been hit with a lawsuit for failing to produce and possibly destroying public records related to a controversial anti-ESG law that was permanently blocked by a state district court judge in July.

state could make a $200 million payment to the state pension systems to pay down unfunded liabilities in scal year 2022. It also allowed for the state to make ongoing additional payments beginning in 2024 that ramp up to $15 million and remain at that level until the pension systems are 90% funded.

Bechhoefer said in an interview with local news outlet Vermont Public that he would be open to restructuring the state’s pension system.

“I’m willing to open up the can and say, ‘Hey, we should have a real discussion about how our population is aging, our revenue base is potentially shrinking over time, and we should have a talk about restructuring and making sure that our pensions are fully funded or we’re paying as we go with a de ned contribution plan,’” Bechhoefer said.

He added that the pension funds’ investments in BlackRock are “deleterious to the state of Vermont,” and he would want to “look at alternatives towards spinning it off.”

In June 2023, Vermont Gov. Phil Scott signed into law a state-run auto IRA program known as VT Saves, which will require employers with ve or more workers to enroll in the program or face penalties.

“VT Saves will make saving for retirement easy and automatic, at no cost to employers and no ongoing cost to taxpayers,” Pieciak states on his website. The bill was a collaborative effort between Pieciak and state legislators, and the program is administered by the Vermont treasurer’s of ce.

ESG in the spotlight

In other state treasurer races across the U.S., environmental, social and governance investing is in the spotlight.

Utah Treasurer Marlo Oaks, who is running for re-election as a Republican, has a whole tab on his

The lawsuit was led Oct. 17 in Oklahoma County District Court by FOIA Professional Services, an Alabama company that manages the requesting process for companies seeking access to information under the Freedom of Information Act.

The plaintiff alleges that the Of ce of the State Treasurer only partially complied with a public records request it made in July 2023 under the Oklahoma Open Records Act.  At issue are three documents relating to nancial institutions that use environmental, social and governance factors in selecting investments.

The plaintiff claims that Harvey sent the documents from her personal email account to her state email account, with at least one forwarded to the Oklahoma State Governor’s Of ce with a message saying, “these are from our friends in DC that came about 2 months ago to meet with Treasurer Russ and the Governor.”

FOIA Professional Services faulted the Of ce of the State Treasurer for failing to produce the additional documents, alleging that the documents were either illegally withheld or destroyed.

“On information and belief, the emails from the ‘friends in DC’ to defendant Harvey at her personal email account either have been illegally withheld by one or more defendants or have been illegally destroyed by defendant Harvey,” the plaintiff claims in the lawsuit.

“The Treasurer’s of ce works diligently with multiple organizations in an effort to provide thou-

campaign website titled, “Stop ESG.”

In 2022, Oaks was one of several state of cials, including the governor, to sign a letter objecting to S&P Global’s decision to publish ESG scores for U.S. states.

When asked if the treasurer should consider factors beyond getting the best investment return, Neil Hansen, the Democratic candidate for Utah treasurer, told The Salt Lake Tribune, “The of ce should never be used for political gain.”

Miles Pomeroy, the candidate for the Utah Forward Party, said that one of his priorities as treasurer would be to “stay independent from national party politics, bickering, and grandstanding,” according to his campaign website.

sands of documents on a regular basis,” Harvey said in a statement. “It is deeply disappointing that an out-of-state company is using Oklahoma’s Open Records Act, a sunshine law designed to ensure transparency for the people of Oklahoma for the bene t of unknown out-of-state entities.”

The lawsuit notes that Harvey, who also serves as the deputy treasurer of administration in the Of ce of the State Treasurer, represents the state agency as a staff representative on the leadership team of the State Financial Of cers Foundation, a lobbying group hostile to ESG investing. Among other things, the plaintiff is looking to declare the defendants’ refusal and failure to provide the requested documents illegal. It is also seeking an order requiring defendants to provide all requested public records that have been withheld.

The complaint follows a lawsuit led by a retired Oklahoma public employee to halt the enforcement of the contentious law known as the Oklahoma Energy Discrimination Elimination Act, which sought to ban public pension funds from doing business with rms said to discriminate against the oil and gas industry. Oklahoma District Court Judge Sheila Stinson issued a permanent injunction against enforcement of the law on July 19.  The attorney general’s of ce appealed Stinson’s ruling and has until Oct. 30 to le briefs with the Oklahoma Supreme Court.

MARGARIDA CORREIA

Utah’s state treasurer sits on the board of the Utah State Retirement Board, which oversees the state’s $59.9 billion in DB and DC assets.

In Arkansas, an anti-ESG law passed in 2023 is one of the issues at the center of the race.

The law, known as Act 411, set up an ESG oversight committee at the treasurer’s of ce to compile a list of nancial services companies that discriminate against companies based on ESG considerations, such as energy, fossil fuel, rearms or ammunition companies.

John Pagan, the Democratic candidate for treasurer, told the Arkansas Advocate that the law is an example of the state government “weaponizing” investment money in “culture wars.” He added that he would enforce the law unless it is struck down in court.

Michael Pakko, the Libertarian candidate, called the law “a big nothing burger” and told the Arkansas Advocate it’s just “posturing” from the state Legislature.

When rst announcing his run in 2023, Secretary of State John Thurston, the Republican candidate, told the Arkansas Democrat-Gazette that he was “committed to working with the ESG oversight committee, the governor and the Legislature to ensure that Arkansas tax dollars are not being used by out-of-state providers imposing their viewpoints and standards on Arkansas investment opportunities.”

The Arkansas treasurer also serves on the board of trustees overseeing the $22.4 billion Arkansas Public Employees’ Retirement System, Little Rock. Missouri Treasurer Vivek Malek is

running for re-election as a strong advocate of anti-ESG policy. He says he is “committed to preventing taxpayer funds from being in uenced by ‘woke’ special interests,” according to his campaign website, and “he supports a ban on state investments that adhere to liberal ESG guidelines.”

Malek also supports divesting from Chinese companies, speci cally in his role as a member of the board of trustees of the $9 billion Missouri State Employees’ Retirement System, Jefferson City. In December, the MOSERS board voted to sell most of its investments in Chinese companies, with Malek’s campaign highlighting the move in an email to supporters as “protecting taxpayer money from the risks associated with investing in a nation that has repeatedly proven adversarial,” according to the Missouri Independent.

Mark Osmack, the Democratic candidate, told St. Louis Public Radio that if the state wants to divest from China, it should be done in a way that doesn’t hurt the state’s agriculture industry.

“I think there’s a way to make this work to where we are not supporting communist nations to the detriment of the United States or our allies, while also maintaining strong economic ties that bene t Missouri farmers,” Osmack said.

Libertarian candidate John Hartwig Jr. said he wants to “initiate a non-partisan review of the policies and procedures of the of ce of Missouri State Treasurer,” according to his campaign website. Green party candidate Reagan Haase does not have a website for her campaign.

FACING LAWSUIT: Oklahoma Treasurer Todd Russ

KEYSTONE CONTEST: Pennsylvania Treasurer candidates Stacy Garrity and Erin McClelland

Fink: U.S. needs to discuss retirement, national debt

The two biggest issues facing the U.S. that don’t get discussed enough are the nation’s retirement system and mounting federal government debt, according to BlackRock Chair and CEO Larry Fink.

Millions of Americans don’t have retirement savings and are frightened that they won’t be able to save enough to retire with dignity, Fink said Oct. 21 at the Securities Industry and Financial Markets Association’s annual meeting in New York. “We as a country refuse to talk about, ‘Do we have the adequate retirement system in place for most Americans?’” he said.

Fink, leader of the nation’s largest asset manager, which reported a record $11.5 trillion in assets under management earlier this month, made a similar point in his annual letter to investors released in March. In that letter, he said “America needs an organized, high-level effort to ensure that future generations can live out their nal years with dignity.”

A BlackRock survey released last month found that 9 out of 10 registered voters agreed that there’s “a retirement savings crisis in America,” with roughly three-quarters anticipating not being able to maintain their standard of living in retirement or cover long-term-care costs such as nursing home expenses.

With respect to Social Security, Fink said Americans would be better served if the trust fund’s assets were invested in the stock market.

“The foundation of retirement in the United States is Social Security,”

he said. “But if that money was put into equities instead of just a debt obligation, most Americans would be a lot better off over the last 50 years.”

Fink, who was interviewed on stage by SIFMA’s President and CEO Kenneth Bentsen Jr., said more public discussion is needed on ways to improve participation in the retirement system so more Americans can comfortably retire.

The other issue that Fink said needs greater scrutiny is the federal government’s nearly $36 trillion debt.

He lamented that neither presidential candidate is discussing the debt on the campaign trail, and both are running on policies that economist expect to raise the debt.

According to Fink, the nation’s capital markets are crucial to reducing the debt.

“The only way we can tackle this

INADEQUATE SYSTEM: BlackRock’s Larry Fink

de cit is to grow the economy above trend line, and the only way we’re going to be able to grow the economy above trend line is to unlock capital-

ism,” he said. “Through the capital markets, we can be really accelerating investments in infrastructure and AI (arti cial intelligence).”

a 2016 rule that a three-judge panel struck down at the 5th U.S. Circuit Court of Appeals, New Orleans, in 2018.

Khawar pushed back on those arguments at Pensions & Investments’ De ned Contribution West conference in Pasadena, Calif.

“We knew about the 5th Circuit’s opinion,” Khawar said. “We took it very seriously, and we think we promulgated something that showsdelity to the concerns that they had.”

The department plans to appeal both rulings halting implementation of the rule, according to September lings.

Another DOL rule currently facing litigation is one nalized in November 2022, which explicitly allows ERISA duciaries to consider environmental, social and governance factors when making investment decisions. That rule reverses two rules promulgated under the Trump administration that said ERISA duciaries could not invest in “non-pecuniary” vehicles that sacri ce investment returns or take on additional risk, and outlined the process for a duciary to take when making decisions about casting a proxy vote.

“I think this is what you see reected in the rule…the question is not whether ESG is good or is ESG bad,” Khawar said. “The question is how can you best deliver risk-adjusted returns to your participants that you’re looking out for?”

The rule promulgated under the

Trump administration made many duciaries think they couldn’t make ESG considerations at all, and “they were very concerned that there was almost an ESG override,” Khawar said in a later interview. Therefore, the new rule aims to take a more “neutral approach,” he added.

Lost-and-found database

Separately, Khawar talked about the DOL’s process of building a lostand-found database, which will allow retirement savers who lost track of their accounts to locate their plan administrators.

The database was mandated as part of SECURE 2.0, the retirement security package passed in late 2022.

‘The question is not whether ESG is good or is ESG bad. The question is how can you best deliver riskadjusted returns to your participants that you’re looking out for?’

EBSA’S ALI KHAWAR

“The problem that we have is that the database is only going to be as useful as the data that’s in it,” Kha-

retirement plan,” she added.

22 at Pensions & Investments’ West Coast De ned Contribution Conference in Pasadena, Calif. Neither recipient attended the conference. They delivered their acceptance speeches via recorded videos.

For Borzi, the retirement security toolkit includes opportunities already on the books such as an emergency savings program via SECURE 2.0.

This “takes the pressure off existing 401(k) plans to allow loans or withdrawals,” she said.

“It is likely to create an incentive for those workers who are worried about locking up their savings in a 401(k) plan to contribute to the plan if an emergency savings opportunity is offered in conjunction with the savings opportunities through the

they can customize at the local level.

Borzi said sponsors should offer nancial wellness or investment advice programs “as long as the advice-giver is an independent entity free of con icts of interests,” and as long as the advice-provider declares in writing that it is acting as a duciary.

Borzi strongly supports auto features, especially automatic enrollment, but she counseled sponsors on understanding the nancial characteristics of their workforce before they act. “It may be better to begin with a lower contribution rate and encourage employees to pay off consumer debt rst,” she said.

Employer contributions

For Iwry, employers should provide more matching and non-matching contributions “instead of mainly exhorting employees to increase their contributions.”

war said.

The DOL had planned to use existing data that 401(k) plans regularly submit to the IRS and Social Security Administration, but the IRS decided it cannot share such data with the Labor Department, citing disclosure and con dentiality restrictions, according to an April proposal from the department.

Therefore, the DOL is “on the cusp of opening the doors to a voluntary information collection,” Khawar said, meaning that plan sponsors and record keepers would need to provide information to the department.

“If you’re a record keeper, if you’re a plan sponsor: really do think about

He called for “more institutional, professional — not self-directed — investing” and “changing business practices to eliminate con icts of interest.”

Employers must “step up to reverse their decadeslong transfer of most retirement-related nancial risks and responsibilities to the individual,” Iwry said. “This has produced a system dominated by IRAs and by 401(k) plans that still too often are do-it-yourself savings accounts.”

Although ERISA and other retirement security laws and regulations have led to greater bene ts, both said more legislation and regulation is necessary.

“We need signi cant reforms to improve the private retirement savings system without replacing it (by) expanding coverage (and) making the system more equitable and inclusive,” Iwry said.

He advocated a nationwide auto-

sending us that information,” Khawar said to the audience of retirement industry professionals at DC West.

When asked how the DOL plans to address cybersecurity concerns around the database, Khawar said in an interview that the database will have a robust identity veri cation mechanism so it can check “you are the person that you’re claiming to be before you can kind of search for your data.”

He also said the Labor Department will likely issue a kind of public noti cation within the next few weeks to let plan sponsors and record keepers know how they can begin sending information for the database.

matic IRA, “building on the existing state-facilitated auto IRAs,” as well as “implementing an expanded and improved saver’s match/credit” and “prohibiting con icts of interest.”

Borzi wants Congress to examine rollover IRAs because she has “serious concerns” about their impact on retirement security because the IRA marketplace has fewer protections than institutional retirement plans. “Congress needs to take a careful look into this trend and perhaps consider adding various consumer protections to IRAs, such as spousal protections,” she said.

“Although there seems to be confusion among vendors regarding the necessity of spousal consent for rollovers, currently spousal consent may be required for the participant to roll bene ts out of their plan but once the money is in the IRA, protections for the spouse may disappear,” she said.

critically important to raise awareness and usage for the new programs given the unique needs of Walt Disney’s diverse employee population, Thomas said.

In developing nancial education, the company does more than just develop a comprehensive strategy at the corporate level. It also provides regional leaders with a toolkit that

“The messaging doesn’t always have to come from the bene ts department,” Thomas said. “It can be further ampli ed by other parts of the organization.”

In addition, the company works with employee resource groups and af nity groups to develop what she describes as “a profound knowledge of the population that we’re serving.”

Thomas said she works with an individual who is a liaison with different employee resource groups to ensure that the company has a “clear

sense for the type of material or the type of subjects that they are hearing from their membership.”

The company also works with nontraditional groups to “amplify the message” around nancial well-being programs.  For example, Walt Disney has a credit union that Thomas said has “great engagement” with lower-income employees.

The company decided to bring the credit union in contact with the record keeper “so that between the two of them there is cross-pollination around the communications,” Thomas said.

high-net-worth investors for private markets investments will make NEPC’s capabilities in that sector a key offering for Hightower’s nancial advisory practices, together with the Boston-based rm's institutional quality investment research and OCIO capabilities.

“Private markets are becoming an area of bigger and bigger demand (in

retail wealth management) and by working together we’re going to be able to put together access vehicles that we can make available to Hightower advisers and our clients,” said Oros.

At the same time, the combination will burnish Hightower’s attractions in the eyes of potential partners going forward as the RIA consolidation trend continues to pick up steam. NEPC’s institutional capabilities become “another attractive lever they can take advantage of by becoming part of Hightower,” Oros said.

Since it was founded in 2005, NBK Capital Partners raised approximately $1.1 billion, and looks to provide capital to the middle market through equity capital, mezzanine debt and sale-leaseback structures.

Following the move, NBK Capital Partners was renamed Janus Henderson Emerging Markets Private Investments.

“As we talked to sovereign wealth partners both in the Middle East and all the way from Turkey down to North Africa, what we found is that they were for a long time very pleased to give their capital away to others, to invest outside of the regions.

“Now, they are more interested in nding opportunities to invest within those regions, which are places where entrepreneurialism is really vibrant. Yet the local banking system isn’t currently ready or able to provide the necessary capital, and so by providing that capital locally we can grow those businesses,” Dibadj said. Dibadj con rmed that while Janus Henderson already has of ces based in the Gulf region, such Dubai and Abu Dhabi in the United Arab Emirates, it may be looking to open more across this geography in the near

future.

Another recent move was the acquisition of the $6 billion Victory Park Capital Advisors, with Janus Henderson completing the deal in October. With Victory Park acting as a global private credit manager, this signaled Janus Henderson expanding its holdings in this asset class as it did in alternatives with NBK.

Victory Park is a rm that focuses on asset-backed nancing, which is particularly appealing to Dibadj: “Private credit is not a monolith.

With cash ow backed lending, you’re essentially underwriting that company. That’s what most private credit is today. Frankly, I think most of that is maxed out, certainly in terms of what should be being placed in the marketplace, and a lot of the diligence has fallen away.

“The other part is asset-backed private credit, when you’re underwriting the asset, which could be anything from freight liners to intellectual property rights. That’s where we were focused, where there is an asset to back up the loan as opposed to cash ow only,” he said.

In July, Janus Henderson completed the acquisition of Tabula Investment Management, making an entry into the European ETF space for the asset manager. Tabula has more than $500 million in assets under management, with strategies listed

a 5% target to timberland and farmland, and new targets of 24% and 5%, respectively, to U.S. xed income and high yield replaced the 15% target to xed income.

equity managers.

At the time, State Street Global Advisors ran four passive equity portfolios for the pension fund: $138 million in small cap, $113 million in large cap, and $155 million in international equities. SSGA was also the pension fund’s sole emerging markets equity manager, running $251 million, and its sole xed-income manager, running a $410 million passive core portfolio.

Reese thought domestic equities is a pretty ef cient market, so he asked, “What are we really paying for?”

After a review of the investment policy, he thought it was best to reduce risk in the portfolio and in May 2021, the board approved a new target allocation in concert with its new investment consultant Marquette Associates.

New targets

Separate targets of 25% and 15%, respectively, to domestic large-cap and small-cap equities were eliminated and a new target of 32.5% was created for domestic equities. Separate targets of 15% and 10%, respectively, to international equities and emerging markets were also eliminated and replaced with a 17.5% target to non-U.S. equities. A 20% target to real assets was replaced with a 10% target to private real estate and

“Instead of having four active managers in large cap, we made that change where now in a risk-off strategy, we went to two active and two passive,” said Reese. “We decided to take off that ‘growthy’ edge and decide when we want to pay for alpha. So now, we pay for alpha in our

‘We decided to take off that “growthy” edge and decide when we want to pay for alpha .’ PENNSYLVANIA MUNICIPAL RETIREMENT SYSTEM’S TIMOTHY REESE

international, we’re paying for alpha in some of our xed, where we can believe we can get a little more performance, and that’s tilted the portfolio tremendously, but we haven’t sacri ced returns in doing it.”

12-month returns

For the year ended June 30, the pension fund returned a net 9.5%, below its policy benchmark return of 10%. The return was just short of the median return of 9.9% among the 78 public pension funds whose returns for the period have been tracked by Pensions & Investments as of June 30.

P&I Events Calendar

across 10 European exchanges and a strong focus on xed income and sustainability.

“That is a business that seeks to take our investment strategies that need to be ampli ed and grow that into the ETF platform outside the U.S.,” Dibadj said.

In the U.S., Janus Henderson is now the country’s fourth-largest active xed-income ETF provider.

vestment Board, Denver, rehired the rm to run about $105 million in short-duration xed income for the state’s $1.4 billion Public School Permanent Fund.

An end to easy money?

While there have been ups and downs, it hasn’t necessarily taken a smart investor to eke out returns in recent years.

‘The cost of capital was previously zero. . . . You had a very easy time where the tide would lift all boats. Well, the tide isn’t going to lift all boats anymore .’

JANUS HENDERSON’S ALI DIBADJ

“In Europe, we’re seeing the exact same trends that we saw in the U.S. on ETF growth, just eight years behind, so the trajectory is likely going to be the same. Compared to us coming from behind as we did in the U.S., we don’t want to have to play catchup in Europe,” he said.

A sign of Janus Henderson maintaining U.S. institutional interest in this space was shown in November, when Colorado’s Public School In-

By asset class, domestic equities was the top performer with a net 19.4% (below the benchmark return of 23.1%), followed by non-U.S. equities at a net 11.1% (below the 11.6% benchmark); global equities, 9.4% (9.1%); xed income, 4.6% (2.6%); and real assets, -2.6% (-3.7%).

The retirement system’s scal year ends on Dec. 31.

The majority of domestic equity assets are now in passive portfolios, two managed by Northern Trust Asset Management ($425 million in assets in the pension fund as of June 30), and one managed by Xponance ($315 million).  Five active managers oversee active portfolios totaling $427 million. Rhumbline Advisers runs $168 million in a passive global low-volatility portfolio, while in nonU.S. equities SSGA runs two passive portfolios totaling $370 million, with active managers Hudson Edge and Hardman Johnston running $117 million and $111 million, respectively.

Within xed income, SSGA runs $400 million in its passive core portfolio, while Federated Hermes runs $354 million in an active core strategy and Ares Management runs $184 million in an active global multiasset credit strategy.

New initiatives include an ongoing search for an active international value equity manager in order to achieve further diversi cation, said Reese.

PMRS manages the assets of 1,100 municipal employees’ pension funds in Pennsylvania.

For example, U.S. 10-year bond yields were at 4.07% in October, and have been above 2% for over two years. In equities, the S&P 500 has posted double-digit returns in ve of the past six years. Prior to the Russian invasion of Ukraine in February 2022, there had also been an era of relative global stability.

Yet, Dibadj argues, times of low-hanging fruit in the investment world may be over.

Fiduciary

that was taken during the rst Trump administration,” he said. “They would not continue to ght the litigation and would address the fallout through FAQs and a revision to the prohibited transaction exemption.”

Under the Trump administration in 2020, the department issued PTE 2020-02, an exemption that permits investment advice duciaries to receive compensation for more types of guidance that are otherwise prohibited under ERISA, like rollover recommendations, so long as they comply with the exemption’s conditions, which include care and loyalty obligations and con ict-of-interest mitigation.

The newly released Retirement Security Rule amended PTE 2020-02 and PTE 84-24, an exemption that impacts independent insurance agents making recommendations, such as annuities sales.

If the 5th Circuit rules against the department, a second Trump administration would likely be of the view that the guidance presented in PTE 2020-02 was suf cient, Wagner said

What would Harris do?

On the ip side, if Vice President Kamala Harris were to win, her administration would seek reconsideration of an adverse 5th Circuit decision, and if the request for rehearing

“We’re entering into a very complex time for investments. In more recent years the geopolitical issues were not as severe, plus the slowing of population growth or demographic shifts wasn’t as impactful as it will be going forward.

“If you have a long-term time frame like institutional clients, the cost of capital was previously zero, so it was easy to borrow money. You had a very easy time where the tide would lift all boats. Well, the tide isn’t going to lift all boats anymore.”

Dibadj insists that geopolitical issues now need to be front and center when assessing portfolio allocations.

Areas to focus on include key thematics, such as the development of gene editing within healthcare, or legislative responses to the advances of arti cial intelligence in the technology space.

“I think there is still a place for passive and index funds, but that place is not as much as it has been before. You have to look at the dynamic economy that we’re in. Sovereign wealth funds are shifting away from passive, and candidly, we’re getting the bene ts of that at Janus Henderson as an active investment shop. Yet you’re starting to see this (shift to active) lter through to the smaller institutional players, and then eventually it’s going to lter through to retail as well.”

were denied, then it would seek review by the Supreme Court, Wagner said.

Similarly, Hadley added, “I would assume a Harris administration would seek to defend the rule until ran out of opportunities to do so.” If a court vacates the rule and a Harris administration is out of avenues to appeal, Hadley said it would likely continue its efforts to apply the rule’s standards in some way, depending on the constraints handed down by the court’s decision. In that case, a Harris administration could issue further guidance, like frequently asked questions, step up enforcement in the area, or even take another shot at amending the regulation in a way they think is consistent with whatever the courts say, according to Hadley.

“Our assumption is there’s a good likelihood a Harris administration would continue to push these efforts,” he added.

If the 5th Circuit or Supreme Court invalidate the rule, Wagner said she doubts that a Harris administration or future Democratic administration would make another attempt to draft a rule de ning investment advice duciaries.

“The only way to achieve the objectives sought by the Department of Labor in the Retirement Security Rule may be by congressional legislation, and regardless of who is the victor in the presidential election, it is unlikely that such legislation could be enacted in a closely divided Congress,” Wagner said.

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