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In the financial industry, the farther one moves from Wall Street, the nicer the people. Asset managers are nicer than investment bankers. Asset owners are nicer than asset managers. Even within the catchall of asset owners, there is a niceness hierarchy—and corporate pension CIOs may be the nicest of them all.
That said, they still bargain hard. When I asked Robin Diamonte, CIO of the United Technologies pension and current chair of the Committee on Investment of Employee Benefit Assets (CIEBA), if she could have the group take our annual Risk Parity Investment Survey, I should have expected a catch.
“Yes,” she told me at the time. “But if we do, we want to see the results first—and you should come to CIEBA to do it.”
Of course, this wasn’t much of a catch. Many a liability-driven investment (LDI) manager would give their first-born to be in a room with the Who’s Who of American corporate investing, which CIEBA annual meetings are. Journalists and conference organizers (I’m both) feel much the same way. Thus, in late October, I happily ventured to Washington to brief the esteemed group on our risk parity survey results.
What I saw there: Two very convincing emerging-market focused hedge fund managers totally disagreeing with each other; a debate between NEPC and Mercer on the merits of risk parity within an asset-allocation strategy; and ex-IBM pension manager Jay Vivian barking like a dog (“The key is to know that dogs bark while breathing in.”).
What they saw from me: A 15-minute sneak-peek viewing of our risk parity survey, complete with what I believe is the first-ever client rating of managers in this space.
I really should have been presenting on our Liability-Driven Investing Survey, which is featured in this issue. Risk parity is currently sexier than LDI, but the latter is clearly a topic du jour, chaque jour for corporate pensions in America (and often abroad).
And yet even that wouldn’t have quite sufficed. Because of the way products are sold to pension funds, and who is making decisions within the pension corporate infrastructure, the industry often speaks of products in silos. As one industry insider told me: “Each participant in the supply chain (asset manager, consultant, CIO, investor, insurer, CFO) has a different goal—respectively, growing assets under management, growing billable revenue, beating benchmarks, reducing volatility and risk, increasing assets under annuity, and maximizing pension income.” If every interested party had one goal—a funded plan that was not large relative to the sponsor—then “every tool can benefit the participant,” he continued. By every tool, he meant not just LDI, but pension risk transfer (PRT), investment outsourcing, and more.
That is the fundamental flaw with this issue, which we refer to internally and externally as our “LDI Issue”. It’s a limiting moniker because corporate plans aren’t thinking like that, just as they don’t think of PRT and outsourcing as discrete trends. They’re all tools used to execute the same action: de-risking.
So this, in a sense, is our last LDI-labeled issue. Henceforth, call it the “De-Risking Issue”—not because LDI’s time has passed, but because its time has truly come.
Kip McDaniel, Editor-in-Chief