This Week’s Issue P&I 2024-06-24

Consultants

Inside Mercer’s deal to acquire Cardano

U.K./Dutch retirement specialist expands Mercer’s capabilities while reinforcing its pension business

By SOPHIE BAKER

A deal in Australia, one in the U.S., and now in the U.K.: Mercer’s planned acquisition of Cardano is the latest example of the consulting giant’s efforts to expand and add to its global outsourced CIO and de ned contribution capabilities, bringing a wellrespected player on board in the process.

Mercer’s parent company Marsh McLennan on June 11 inked a deal to acquire U.K. and Dutch retirement specialist Cardano, a privately owned rm that’s been in operation for 24 years. Subject to regulatory approvals, the deal will close at the end of the year, and about 550 Cardano staff will join Mercer. Terms of the deal were not disclosed.

“It’s tick, tick, tick in what we were

SPECIAL REPORT DC MANAGERS

AUM rebounds as passive strategies outpace active

Assets increase 15.6% to $9.81 trillion, propelled by big gains in stocks, bonds

By ROBERT STEYER

De ned contribution assets under management rebounded in 2023 to $9.81 trillion, up 15.6% over the year, propelled by stock and bond market gains, according to Pensions & Investments' annual survey of DC retirement plan asset managers. The record is $10.13 trillion in 2021. DC asset managers capitalized on the S&P 500 index rising 26.3% and the Bloomberg U.S. Aggregate Bond index gaining 5.5% — a dramatic change from 2022 when they dropped 18.1% and 13%, respectively. Index equity investments grew faster than actively

looking for and where we think Cardano (is) really strong,” said Phil Parkinson, head of retirement and investments at Mercer U.K., in an exclusive interview. “It expands our capability for clients and responds to … the demand that we’ve been seeing.”

Cardano ticks boxes in terms of “doubling down on our … pensions heritage and making sure we are investing in that in terms of capability, good talent and certainly from our OCIO or solutions business,” Parkinson said.

While Mercer has been successful

in its OCIO and solutions business

— it’s the largest OCIO rm according to Pensions & Investments data, with $419.6 billion in OCIO assets as of Dec. 31 — “we’ve been getting demand for more implementation capability” from certain clients, he said.

“So we’ve had this strategy of saying, well, we would really like to expand our toolkit to include some implementation capability in response to that client demand. … That was a key strategic pillar.”

Last year, Mercer agreed to

Alaska Perm CIO: It’s time to raise private equity target

By ROB KOZLOWSKI

Marcus Frampton, CIO of the Alaska Permanent Fund Corp., Juneau, sees private equity fundamentals improving, which is leading to a return to a higher target allocation. Frampton said the $78.6 billion sovereign wealth fund’s board voted

at its May 30 meeting to raise its private equity target to 18% from 15%, and that followed several years of gradually lowering the target from its peak of 19%.

He said in 2018, 2019 and 2020, APFC was committing about $2 billion a year to private equity and venture capital funds, and then decided

in 2021 to step down that pacing plan to $1 billion a year in commitments.

The reasons behind the decision to lower exposure to private equity were twofold, he said.

“One was actually private equity has not been exiting at the rate we assumed in our models,” said

Regulation

SEC loss in court sparks investor alarm

But decision against private funds rule hailed by industry

By BRIA N CROCE

Institutional investors seeking more transparency from private funds are dismayed with a federal appeals court’s decision to strike down a Securities and Exchange Commission rule that required increased disclosure from private fund advisers and prohibited certain fee arrangements.

“We are disappointed in the decision, which sets back efforts to increase private fund transparency and comparability to fund investors on fees, expenses and performance,” said Amy Borrus, executive director of the Council of Institutional Investors, in an email.

CII, the Institutional Limited Partners Association and 11 public pension funds, including $325.9 billion California State Teachers’ Retirement System, West Sacramento, led an amicus brief in December defending the SEC rule against a private fund industry challenge, arguing that private fund advisers hold outsized control of information and in uence over the fund formation process, to the detriment of investors. The alternatives market does not require the type of regular

Arnold Adler

Amy Borrus

GOOD FIT: The deal ticked all the boxes, according to Mercer’s Phil Parkinson.

MERCER ON PAGE 27

ESG

Industry execs pondered the state of diversity at a Nicsa symposium. Page 23

Markets

The inclusion of Indian bonds in an EM index is great news for the country — but managers see ongoing hurdles. Page 4

Money Management

Global investors are already overweight Indian sovereign bonds. Page 4

Pension Funds

CalPERS is looking for private debt execs to ll out an understaffed area. Page 6

San Luis Obispo County’s executive director is keeping an eye on the bigger picture. Page 26

Special Report: DC managers

Target-date assets continue to be concentrated with just a few managers. Page 14

Retirement plan advisers are making good use of AI tools. Page 18

Washington

The landmark House-passed crypto bill has supporters and detractors. Page 24

Washington

Reform to voluntary carbon markets gains steam

Biden initiative to tame ‘Wild West’

By BRIAN CROCE

In recent years, as efforts to combat climate change have ramped up, many businesses made net-zero or carbon-neutral pledges.

But for most, it’s impossible to meet those goals without offsetting their carbon emissions, which is where voluntary carbon markets, or VCMs, come into play. Now, a new Biden administration initiative could bolster transparency and make VCMs more attractive to investors.

“Voluntary carbon markets have really been the Wild West to this point because they’re unregulated,” said Krista S. deBoer, a partner at Morrison & Foerster, noting that VCMs have been scrutinized in recent years over quality and ef cacy concerns.

However, on May 28, key administration of cials released a joint policy statement formalizing the federal government’s approach to advancing high-integrity voluntary carbon markets, which could help move the markets into the mainstream, sources said.

“I think it will give investors con dence, but I also think it will give them guidelines to make sure they’re investing in the right kinds of projects,” deBoer added.Carbon-producing businesses, like airlines, can purchase carbon credits to offset their emissions. Market players can also

Money Management

Fidelity building out its alts business hire by hire

Instead of buying rms, Fidelity chose to build business from scratch

By DOUGLAS APPELL

Roughly seven years after Fidelity Investments made building out alternatives capabilities a priority for the rm, the Boston-based giant’s assets under management in alternative strategies remain a rounding error for a rm that reported $4.58 trillion of AUM as of Dec. 31.

Fidelity’s alternative businesses currently boast combined AUM of more than $14 billion across a range of offerings, including distressed debt, real estate debt, direct lending, core real estate and digital assets, up

Washington

from $2 billion in 2019.

But Fidelity executives say they’re not losing sleep over a pace of progress that might seem deliberate visa-vis some competitors.

“Our business is ahead of plan and ahead of schedule,” said Harley Lank, the rm’s Boston-based head of high income and alternatives. Building out capabilities step by step, hire by hire, with a focus on Fidelity’s culture is positioning the rm for long-term success, he said.

The path Fidelity trod in adding direct lending to its alternatives quiver in recent years has been a case in point.

Five years ago, direct lending “was a capability that we did not have and we felt, for a lot of reasons … we should have, rst and foremost because we’re in business to help cli-

Senators oat bill to

By BRIAN CROCE

Two Senate Democrats have introduced a bill that would create a new criminal penalty for private equity executives who “loot” healthcare entities like nursing homes and hospitals.

Under the Corporate Crimes Against Health Care Act, introduced June 11 by Sen. Elizabeth Warren, D-Mass., and Sen. Ed Markey, D-Mass., executives “whose actions contributed to a triggering event that results in the death or injury of a patient or patients” will face up to six years in prison.

The bill also provides state attorneys general and the Department of Justice with the power to claw back all compensation, including salaries, issued to private equity and portfolio company executives within a 10year period before or after an acquired healthcare rm “experiences

ents meet their nancial goals, objectives and needs,” Lank said.

The rm thought long and hard about buying — there were some attractive acquisition opportunities at the time, noted Lank — but in the end “decided that building from scratch was the way to go, even if it took longer to get to scale.”

That choice re ected a conviction, shared by top Fidelity executives, that “culture is really important to us,” said Lank. “Making sure we get the right investment talents in Fidelity is really important in the long run,” he added.

Some of the rm’s biggest competitors, by contrast, have relied on acquisitions to accelerate their push into alternatives.

In January, BlackRock, the world’s biggest money manager with more

serious, avoidable nancial dif culties due to that looting,” according to a bill summary. Moreover, it would authorize an associated civil penalty of up to ve times the claw back

amount.

Over the last decade, private equity fund assets have more than doubled, totaling $8.2 trillion in 2023, according to data from McKinsey &

than $10 trillion in AUM, said it will buy Global Infrastructure Partners and its more than $100 billion under management in infrastructure equity and debt for $12.5 billion. That will pave the way for BlackRock, which already had $51 billion in infrastructure AUM as of March 31, to quickly become a dominant player in that fast-growing corner of the alternatives universe.

T. Rowe Price Group, a $1.49 trillion, Baltimore-based rm with its own storied culture, has also used mergers and acquisitions to build its alternatives business. In December 2021, T. Rowe acquired Oak Hill Advisors, a New York-based alternatives rm that had $56 billion of capital under management at that time across private, distressed, special

Co. cited in the senators’ news release.

“When private equity gets hold of healthcare systems, it is literally a matter of life and death, so if you drive a hospital like Steward into bankruptcy, putting patients and communities at risk, you should face real consequences,” Warren said in a statement.

The Massachusetts senators said that private equity “greed and mismanagement” drove Steward Health Care, which operates eight hospitals in the Massachusetts, into bankruptcy.

“Private equity rms and their enablers will continue to steal from America’s healthcare system to feed their corporate greed unless we stop them,” Markey said in a statement. “We need guardrails now to guarantee CEO wealth doesn’t come before the public’s health.”

UNDER THE HOOD: Morrison & Foerster’s Krista S. deBoer says investors will bene t from the increased transparency the initiative would bring.

ON GUARD: Sen. Elizabeth Warren and Sen. Ed Markey’s bill would mean prison time for execs ‘whose actions contributed to ... the death or injury of a patient or patients.’

Funds mostly vote no on Musk’s $56 billion payday

Despite opposition, Tesla boss’ compensation package passes, with 72% of votes cast in favor

By ARLEEN JACOBIUS, ROB KOZLOWSKI, CHRISTOPHER MARCHANT and LYDIA TOMKIW

U.S. and international pension funds and other asset owners mostly voted against Elon Musk’s $55.8 billion pay package at electric carmaker Tesla, but other large institutional investors supported it — and Musk prevailed. Norges Bank Investment Management, which runs the assets of Norway’s sovereign wealth fund — the 17.7 trillion Norwegian kronor ($1.65 trillion) Government Pension Fund Global, Oslo — voted against the pay package for Tesla’s CEO at the shareholder meeting June 13 in Austin, Texas.

NBIM said it would not comment beyond the vote rationale published on its website: “Norges Bank Investment Management voted against a Tesla Inc. proposal to ratify performance-based stock options to Elon Musk, consistent with our vote on the same award in 2018. While we appreciate the signi cant value generated under Mr. Musk’s leadership since the grant date in 2018, we remain concerned about the total size of the award, the structure given performance triggers, dilution and lack of mitigation of key person risk. We will continue to seek constructive dialogue with Tesla on this and other topics.”

One of the larger pension funds to support Musk’s pay package was the Florida State Board of Administration, Tallahassee, which manages $254 billion in state assets, including the $193.2 billion Florida Retirement System Pension Plan and holds 2.9 million Tesla shares.

The proposal to ratify an award of stock

For Sacramento County CIO, liquidity is always top of mind

Employees’

and contributions.

Fund added allocations to cash, cash- owing assets to stay liquid

By LYDIA TOMKIW

Steve Davis, chief investment ofcer of the $13 billion Sacramento County Employees’ Retirement System, spends a lot of time thinking about liquidity.

As a mature public pension fund, SCERS has more bene t payments going out than contributions coming in.

“We really have to think about liquidity,” Davis said in an interview at the system’s of ce in California’s capital city. “And ultimately, we always have to be in a position to meet our bene t payment obligations and other nancial obligations. And we

DC manager assets shift over time

can’t put ourselves in a position where those are ever at risk.”

SCERS runs an annual liquidity study to “bucket” where the pension fund has the most and least liquidity in their investments. And the retirement system added a dedicated cash allocation in 2019, Davis said.

“The size of that (cash) allocation is intended to grow with the gap between bene t payments and contributions. Right now on an annual basis it’s 2%. So we have a 2% cash allocation, and that serves as an extra liquidity buffer,” he said.

“And then we’ve also gravitated more towards cash- owing assets like infrastructure and private credit, which are really important for a plan that’s liquidity sensitive; and cash ows line up well with our needs in terms of making sure we’re in a position to meet our bene t

By LYDIA TOMKIW

Bruce Richards has been investing in credit markets for 35 years and thinks the growth of asset-based lending is the next big thing.

“The advent and development of asset-based lending is as big as the advent and development of corporate direct lending,” he told Pensions & Investments at Marathon Asset Management’s New York of ce.

Richards, the cerebral chairman and CEO of the $23 billion global credit rm, brings sheets full of data points to describe the credit markets he has witnessed grow and change over his career.

Richards, 62, along with CIO Lou Hanover, 58, founded Marathon in January 1998. Marathon, which invests in both public and private credit markets today, about 15 years ago began setting up private credit teams in direct lending, asset-based lending and opportunistic credit, he said.”The markets are merging between private credit and liquid credit … it’s one of the big evolutions that are happening. It’s not two separate markets. It’s

There have been notable shifts over the years in money managers’ de ned contribution assets. These include changes to the mix by plan type and investment vehicle as money managers saw signi cant increases in 401(k) and pooled/commingled fund assets. This data was compiled based on responses to Pensions & Investment’ 2024 annual money manager survey.

401(k) assets up: Assets in 401(k) plans have become a larger part of money managers’ DC AUM. They now account for 71% of assets, up from 56% in 2008. During this period, assets in 403(b) plans have dropped 12 percentage points to 8%.

DC asset % by plan type

Size differentials: 401(k) assets of the 10 largest DC managers amounted to 73% of the total, compared with 58% for the other rms. The smaller managers had 29% of assets in the “other” category.

DC assets by manager size

Shifting vehicles: The percentage of DC assets in pooled/commingled funds has grown over the past 10 years, while the percentage of assets in mutual funds has fallen. The largest managers had nearly 41% in pooled/ commingled funds vs. 30.2% for all others. DC vehicle mix

Varied weights: Three of the ve largest DC managers had a greater weight in equities from about 75% of assets to 93% vs. 68.5% for all plans. Among the largest mangers, xed income ranged from 1% to 22%.

Largest managers’ DC asset breakdown

BANK: Tesla CEO Elon Musk’s pay package gets the OK, with little help from some funds.

STAYING AGILE: Sacramento County

Retirement System CIO Steve Davis said he has to keep an eye on the balance between bene t payments

Trading, tax issues muddle India’s entry into emerging markets club

By SOPHIE BAKER

The inclusion of Indian bonds in a major emerging markets index is great news for the country — but that’s almost by-the-bye for emerging markets managers. Rather, their attention is on the onerous nature of operating in the market, and what India’s inclusion means for the countries that will be making way for the new kid on the block.

Starting later this month, certain

India sovereign bonds will be included in the emerging markets index run by J.P. Morgan. The 23 securities that are expected to be admitted to the index have a notional value of about $330 billion, and will be included in phases over 10 months to reach a 10% maximum weighting.

While any inclusion is positive for investors and the market itself, with increased diversi cation across the index, the well-signposted and long

process of India’s inclusion isn’t sparking much excitement among emerging markets managers — who warned that those hoping to get invested immediately may need to think again.

“We would expect that for our index xed-income desk, India’s inclusion in the J.P. Morgan index will be the biggest individual index-related event in 2024,” said Lee Collins, head of index xed income at Legal & General Investment Management.

The $1.48 trillion money manager has been investing in the Indian government bond market for more than 2½ years, since it launched its

India bond exchange-traded funds, “and thus we are fortunate to have the practical experience that many

Money Management

Indian bonds are already favored; EM inclusion will expand appeal

By NATALIE KOH

allocators.

The inclusion of India’s government bonds into the J.P. Morgan emerging markets index in June will help increase ows, but global investors have already been overweight Indian sovereign bonds in recent months, if not years, investment managers said.

Local currency sovereign bonds from India will be added in 1 percentage-point increments each month to the J.P. Morgan Government Bond Index-Emerging Markets, thenancial institution announced in September. By March 2025, India’s bonds will make up 10% of the index.

“For benchmark-aware strategies, managers will gradually scale their positions to remain sensitive to the prevailing benchmark constituents,” said Singapore-based Arvind Subramanian, senior analyst of manager research at Morningstar.

“That said, even prior to the inclusion, many strategies have held off-benchmark positions in India’s sovereign bonds, highlighting their positive view of the country,” he added.

Institutional investors have been interested in Indian bonds because of the country’s strengthening macroeconomic outlook, including robust growth, stable in ation and extensive foreign exchange reserves, he said.

In addition, India's performance within the widely tracked J.P. Morgan Asia Credit Index has stood out relative to peers in the region, he added.

“If you think about India, (with) yields as a whole at 7% for growth of 6.5%, compared to many parts of the world, it is very attractive for a country that is rated ‘outlook positive’ by S&P just (last) week,” said Singapore-based Howe Chung Wan,

WELCOME: A woman passes the Bombay Stock Exchange building in Mumbai, India.

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CalPERS on the hunt for execs to staff private markets teams

vate equity, and compliance and risk teams, according to information released during board and committee meetings.

ARLEEN JACOBIUS By

CalPERS is looking for more executives as it tries to staff up its private credit team — including nding a successor for its global head of private debt — and beef up its pri-

The $499.7 billion California Public Employees’ Retirement System, Sacramento, is understaffed in private credit, said the board’s general investment consultant, Wilshire Advisors, in a report for its June 12 investment committee meeting.

CalPERS private credit and private equity teams are doing more

with less. In March, CalPERS increased its private equity allocation by 4 percentage points to 17% and boosted its new private debt allocation 3 percentage points to 8%.

While the private debt team is experienced and created a strong foundation for the private debt portfolio, the team is “considerably under resourced and additional resources are needed for continued success,” Wilshire said in the report. The private debt team had ve outstanding hires as of year-end 2023.

In May, Jean Hsu, managing investment director of private debt announced she will retire in July after close to 25 years at CalPERS. The pension fund is not naming an interim head of private debt. CalPERS CEO Marcie Frost said at the meeting she hopes to name Hsu’s replacement at the end of the year.

During the committee meeting, Hsu said that team may be small but “is strong in culture, partnership and work ethic, which has and will continue to drive the success.”

“During COVID and beyond, we expanded our depth by working after hours and getting invaluable experience which we use to create true innovation solutions,” Hsu said.

Recruitment was top of mind for Hsu and her team.

“I feel like last year, a good portion of our time and the team’s time was spent on recruiting, talking to recruiters, talking to prospective candidates, and trying to sway people, good quality people to join us,” Hsu said.

In private equity, CalPERS had 43 approved positions as of May 1, with 34 staff and nine openings, compared with a staff of 35 as of June 30, 2023, Wilshire said in another report.

“While we believe the staf ng levels are suf cient to execute the current investment strategy, we note there are several open positions currently,” Wilshire said.

However, the private equity group needs more staff “as well as an expansion of skills to identify, execute, and monitor an increasingly complex portfolio,” Wilshire said.

During the investment committee meeting, Frank Ruf no, California Treasurer Fiona Ma's designee on the CalPERS board, asked Anton Orlich, managing investment director, private equity, whether his team was suf ciently staffed in light of 10 promotions and six people leaving the team last year.

The vacant positions are a result of concentrating “our resources during the search processes to have internal promotions,” which has been "a boost to morale" and "long overdue recognition of their spectacular work," Orlich said.

Over the next several quarters, most of the vacancies will move to be more junior positions, he said.

The  compliance and risk team openings are part of CalPERS' plan to build compliance and risk resources, which is in its second year, said Kevin L. Fein, CalPERS chief compliance of cer, at the June 12 risk and audit committee meeting.

The compliance and risk team has 29 positions, including nine that are vacant, a CalPERS spokesperson said.

Defined contribution sponsors are evaluating and improving their plan investment menu with an eye toward boosting their participants’ financial security. Today’s chief catalysts include higher interest rates — which have led to fortifying target-date funds with higher-quality, less volatile fixed income allocations — as well as an industry-wide focus on improving retirement outcomes — which has encouraged plans to consider a range of solutions from capital preservation options to lifetime income products. Many plans are also evaluating alternative investments to enhance diversification on the menu.

The march toward customization that can better meet individual participant needs also continues apace, via managed accounts, personalized advice, and multi-asset solutions. This panel of DC industry experts will share the latest thinking by DC plan sponsors on the investment menu, key solutions being considered, product innovations and the wider regulatory developments that plan sponsors need to keep in mind as they rise to the challenge of improving financial outcomes for American workers.

Sponsored by:

80TH ANNIVERSARY

To mark D-Day anniversary, Patron Capital chief paddles the Channel

To mark the 80th anniversary of the D-Day landings, Keith Breslauer, managing director at European real estate manager Patron Capital, crossed the English Channel in a kayak.

Breslauer completed an 87½ nautical mile paddle at night, starting in Portsmouth, England, and landing in Port-en-Bessin, France, in commemoration of Operation Overlord — the Allies’ mass air and water assault on Nazi-occupied France, which began on June 6, 1944. Breslauer is also vice patron of charity at The Royal Marines Association, and completed the journey alongside 19 serving and veteran Royal Marines.

He and fellow participants nished up on the Allies’ landing beaches, beginning with the U.S. sections (code names Utah and Omaha) on June 5, and ending with the British and Canadian sections (code names

THE HUMAN TOUCH

FINRA survey nds consumers trust pros more than AI

Consumers usually trust human intelligence more than arti cial intelligence when it comes to certain nancial issues, the FINRA Financial Education Foundation says in a recent survey.

Consumers showed a greater distrust of AI in four sets of hypothetical personal nance statements about stocks performance vs. bonds, home ownership, women investors and emergency savings in a national sample of 1,033 adults, conducted in mid-February.

Respondents showed a clear, greater trust in three of the four categories for nancial professionals. AI trust (34% of respondents) edged out the trust of nancial professionals (33%) in the stocks vs. bonds question.

For each question, half of the study participants were told the information was provided by AI and the other half were told the information was provided by a nancial professional, the report said. Respondents were then asked to what extent they trusted — or distrusted — the information.

The statement, in which AI was more trusted, said stocks will outperform bonds by 18% to 23% during the second half of 2024.  Consumers had greater distrust of AI on this question (24%) vs. nancial professionals (19%).

The other statements demonstrated more trust in nancial professionals:

■ For the statement that women should own more stocks than men because they live longer, 37% trusted nancial professionals vs. 31% for AI. The distrust for this question was close: 21% for nancial professional vs. 22% for AI.

■ For the statement that young adults should prioritize emergency savings before paying off their credit card debt, 55% trusted nancial professionals vs. 49% for AI. The distrust for AI was greater for this statement: 29% vs. 24%.

■ Told that buying a single-family home was a good investment because the homeowner would live in the house for at least six years, 65% trusted nancial professionals while 57% trusted AI. There was less distrust of the professionals (15%) vs. AI (20%).

ROBERT STEYER

Gold, Juno and Sword) on June 6. They then joined a re-enactment of the landings at Sword Beach with the Royal Marines unit 47 Commando.

Breslauer and his fellow paddlers wanted to increase awareness of both the 80th anniversary of D-Day and the RMA charity’s work with veterans. Patron Capital will match all funds raised through the expedition.

Patron Capital and Breslauer have already raised about £5.3 million ($6.7 million) for the charity since 2010, helping more than 460 serving and retired service personnel.

“This year’s anniversary of Operation Overlord is one of the last chances to commemorate a major anniversary of the largest opposed amphibious operation in human history with living veterans,”

Breslauer said in a news release ahead of the expedition. “To honor the 4,414 men who lost their lives on D-Day and the 73,000 men

who lost their lives in the ensuing Battle for Normandy, I am privileged to be able to complete this crossing in memory of those who made the ultimate sacri ce in order to defend our freedom.”

The RMA, Breslauer and Patron Capital have also worked with the Hasler Naval Service Recovery Centre to help war veterans preparing to re-enter civilian life

FOR THE FENCES

T. Rowe Price partners with Baltimore Orioles as part of brand refresh

The next place you see T. Rowe Price’s bighorn sheep logo could be behind home plate at a Baltimore Orioles game. Or on the scoreboard at the team’s Camden Yards stadium. Or on Orioles players’ jerseys.

The Baltimore-based money manager, best known as an active manager of large-cap U.S. equities, announced a multiyear partnership this month with the city’s storied baseball club — newly owned this year by another asset management icon, Carlyle Group’s David M. Rubenstein.

The deal is part of a full court press to refresh the 87-yearold organization’s brand, with the help, in part, of a heavy dose of sports marketing, according to Theresa McLaughlin, T. Rowe’s rst head of global marketing.

Research commissioned by T. Rowe showed the rm’s clients — retail, intermediary as well as institutional — sharing a broad interest in sports, making sport-related sponsorships and partnerships an ef cient means of “telling our story,” McLaughlin said. And part of that story revolves around the truism that “what got us here” won’t necessarily be what takes T. Rowe to the next level, she said.

For example, if large-cap equities were far and away the focus of the money manager’s growth in decades past, fast-growing business segments such as retirement funds or active ETFs will be more central going forward — facts “we needed to shout a little louder … and nd creative ways to tell,” McLaughlin said. The campaign’s broader theme is “the power of curiosity,” a byword for active management, she said.

Following T. Rowe’s sponsorship of the Atlantic Coast Conference basketball tournament earlier this year, which proved highly effective, the tie-up with the Orioles should help T. Rowe “win the hearts and minds of lots of folks” — not just in Baltimore but in other baseball markets where the rm has considerable business, including Toronto, she said.

DOUGLAS APPELL

through donations to fund specialist equipment, respite breaks for veterans and their families at Patron Capital-owned hotels, and introductions to source internship and career opportunities.

Breslauer is also the founder of Patron Capital, which has €5.2 billion ($5.6 billion) in capital under management.

FIGHTING BIAS AI can help to advance DEI, say symposium panelists

Arti cial intelligence is nding ways to permeate itself in the money management industry, from being an investment opportunity to being a business-problem solver.

The next frontier for AI and asset managers includes efforts to improve diversity, equity and inclusion, said panelists at the Nicsa 2024 Fearless Leadership Symposium in New York on June 12.

An area companies are looking at is hiring practices and talent management, which entails bias, and “the challenge with unconscious bias is we’re not aware of it,” said Fee Torpey, senior manager at Deloitte Consulting Investment Management.

When unconsciously biased, an individual unintentionally behaves in a way that is in favor of or against an individual or group, and “that will inevitably create problems with the group,” she noted. She sees

content creation and training as two areas generative AI can be utilized, adding that the technology can analyze cultural differences. .

“We can have our marketers, managers or directors take those cultural differences and advance and create solutions that advance some of those different organizational challenges,” Torpey said.

But managers need to be mindful that if an “AI system is not designed appropriately, it could perpetuate some risks,” said Myra Chen, director and vice president of insights and analytics at the $2.6 trillion investment rm Capital Group.

One risk is that AI can develop a bias, so when training a system, she said the data it is fed needs to have “balanced representation.”

AI is not meant to replace human decision making, but instead augment it and add “another point of view at the table,” she added.

Generative AI could also be used to “build an environment in which we want to be in,” said Shannon Daigh, executive director and global head of middle of ce product at J.P. Morgan Chase & Co.

Additionally, generative AI has the ability to synthesize responses from and produce comprehensive summaries of engagement surveys, including ones that gauge the opinions of associates, Chen said.

Most importantly, she said managers need to be clear on why they need AI.

“I think we really need AI so that we can free up our capacity,” Chen said. “We can have more time to build out more meaningful in-person relationships with each other and empower our associates to advance their career.”

CARYL ANNE FRANCIA

CHRISTOPHER MARCHANT

LONG HAUL: Keith Breslauer and Royal Marines paddle across the English Channel.

SWINGING

NEW TOOL: Cheryl Boyd, left, Fee Torpey, Shannon Daigh and Myra Chen discuss AI and DEI at the Nicsa 2024 Fearless Leadership Symposium.

Caryl Anne Francia

PANEL DISCUSSION

Join industry leaders, a seasoned hiring recruiter, and an expert career coach as they delve into the challenges faced by talented women in navigating their careers. Explore how many women find fulfillment by charting a more “lateral ladder” of success, acknowledging diverse paths beyond the traditional corporate climb.

the CEO

FEATURED SPEAKERS

Discover keys to crafting a career plan that aligns with your aspirations, focusing on strategic agility, the power of asking, and navigating transitions:

• Strategic Agility

• The Power of Asking

• Navigating Transitions

Don’t miss this insightful discussion on redefining success and mastering the journey beyond the CEO role.

MODERATOR

Kelly Baldoni Vice President, Global Women’s Strategies, Impax Asset Management

Joanna Bloor Work Futurist, TED Speaker, Social Scientist

Annie Chor Joyce Managing Director, Head of ESG Amundi U.S.

Renee Neri Partner

Heidrick & Struggles

Melody Rollins, CFA, CAIA

Global Head of Core Institutional Clients Bridgewater Associates

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OPINION

India’s long-term secular growth outlook should tempt savvy global investors

As chief investment of cers target solid, real risk-adjusted returns, they face key risks, from geopolitics to government debt to climate change. A “theme investing” lens enables CIOs to identify secular trends driven by demographics, digitization, deglobalization and decarbonization.

Investing in India can capitalize on these trends, as it’s uniquely positioned to deliver strong growth over the next 20-plus  years. India’s gross domestic product grew 8.2% in scal 2024 and should grow about 7% in 2025.

Today, India is the world’s fth-largest economy and is on track to be third by 2030, behind the U.S. and China. India’s 3%-plus share of global GDP should double in the next 15-plus years. Yet, Indian equity represents only about 0.3% of global equity portfolios, and herein lies the opportunity.

Indian equities delivered solid returns with low correlation

As Figures 1 and 2 show, since 2004, Indian equities:

■ Earned attractive risk-adjusted returns and outperformed in most periods vs. the U.S., emerging markets and China, with relatively low correlation. Correlations of Indian and U.S. equities (in U.S. dollars) were 0.5-0.6 over three-, ve-, 10- and 20-year periods, reinforcing India as a diversi er in global portfolios. Also, India has many world-class, capital-efcient companies, where earnings growth drove strong equity returns, and should continue to outperform in the next two decades.

■ Traded at a premium due to India’s growth pro le. Hence, if Indian companies continue to deliver strong earnings growth and capital ef ciency, it’s worth paying for higher valuations. In December 2023, Indian equity market’s price-to-earnings ratio was about 19.6 times its one-year forward earnings and above its 15-year average of 18.5 times. The bottom line — many Indian companies have strong balance sheets and can drive robust earnings growth.

The International Monetary Fund recognizes India as a “star performer,” citing its strong GDP growth (i.e., 16% of global GDP in 2023 ),

due to its policies and reforms. Since 2014, Prime Minister Narenda Modi has laid the

foundation for India’s growth:

Reforms, infrastructure laid foundation  Modi’s reforms include a goods and services tax, 500 million-plus new bank accounts, labor reforms, and an insolvency and bankruptcy code. India enhanced its physical infrastructure, which was a signi cant GDP multiplier (i.e., 2.5 times in year 1 and 3 times in year 2 for every rupee spent ), as it kick-started broad economic growth.

From 2014 to 2023, India doubled its airports to 140, with 220 targeted by 2030; enhanced its electricity infrastructure, with a 30 times increase in solar capacity from 2.6 to 72.3 gigawatts; and grew its road and transport budget 9 times. India continues to enhance its infrastructure as global institutions invest in roads, logistics and renewables to support

Figure 1 Indian equities have consistently outperformed other major markets

Movement in the MSCI indexes for the respective countries, rebased to 100, in USD, from 2004-2023.

Mahesh Ramasubramanian , senior vice president of institutional business, ASK Capital, India, joined the rm in August 2022. Bernice Miedzinski founded StarBridge Capital as a boutique placement and advisory rm in 2012.

OTHER VIEWS MAHESH RAMASUBRAMANIAN and BERNICE MIEDZINSKI

Bank overseer FDIC has no business regulating asset managers

The Federal Deposit Insurance Corp. recently made a push to assert regulatory authority over large asset managers such as Vanguard Group, BlackRock and State Street. Their enormous funds — each has over $1 trillion in their agship index funds — invest in every single company in the U.S. stock market, and that number includes numerous banks.

The ostensible concern for the FDIC’s interest in pursuing regulatory authority — expressed by FDIC Director Jonathan McKernan and Consumer Financial Protection Bureau Director Rohit Chopra — is the notion these asset managers may not be sticking to their passive roles when it comes to their bank investments.

In late April, each regulator put forward separate proposals to increase FDIC oversight of the large asset managers to ensure that they remain "passive" investors in banks. McKernan proposed setting up an FDIC-run compliance program over asset managers, while Chopra proposed a rule change that would assert FDIC oversight over banks that le a change in control application–even if the Federal Reserve reviewed and approved the change.

While the proposals were quickly shelved, FDIC board members all expressed support

India

CONTINUED FROM OPPOSITE PAGE

India’s future growth.

Middle class, young people boost consumption India surpassed China as the most populous country in 2022, with more than 17% of the global population. India’s demographics drive sales across sectors (e.g., consumer goods, real estate, automobiles and tourism) as about 125 million households are highand upper-middle-income segments. India has signi cant potential and can double its current $2,411 per capita income by 2030. India’s GDP is about 60% consumption and growing rapidly

Indraneel Chakraborty is a professor in the nance department at Miami Herbert Business School. He has worked for Citadel Investments and Citigroup Global Markets xed-income divisions.

for revisiting the issue in the future — perhaps before the 2024 presidential election. That the FDIC still is considering what amounts to an ambitious regulatory power grab should raise alarm for both nancial institutions and investors — not to mention taxpayers and the larger economy that relies on a robust free-market system.

The purpose behind these proposals — other than expanding the regulatory authority of the FDIC — remains unclear. The Federal Reserve already regulates large asset managers with signi cant positions in banks, and it has a comprehensive and transparent framework to determine when a company controls a bank. In addition, Vanguard and BlackRock have agreements with the Federal Reserve to remain passive investors and not seek to exert any authority if they have 10%

given its huge young population, as India’s median age is 28.

Two-thirds of Indians are age 15-59 and this working group, coupled with growing urbanization and af uence, supports consumption and broad economic growth

(e.g., in 2023, of 9 million iPhones sold in India, 60% were outside Tier 1 cities). Also, e-commerce is growing in urban and rural India, and consumers are spending as discretionary incomes grow.

Deglobalization benefits

India as manufacturing hub India is capitalizing on global companies’ “China-plus-1” strategy by growing its manufacturing.

India’s industrial sector should grow from about $480 billion to $675 billion by 2027, which is small relative to China’s $5.1 trillion, but

or more of any class of voting securities of a bank.

The asset managers have made a number of other commitments at the behest of the Fed, such as not taking any action that asserts control over the bank, not having more than one common director or employee with the bank, not selling shares to anyone seeking control over the bank, and not threatening to sell shares to induce the bank to take any actions or non-actions.

In the spirit of nonduplicative and transparent rule-making, the FDIC should point out the speci c gaps in regulation by the Federal Reserve that it plans to ll. Even if it can identify regulatory gaps, the Federal Reserve Board would be the appropriate authority to cover those potential blind spots, and it should not be hard for the FDIC to convey its concerns to the Fed.

Instead of looking to unnecessarily expand its regulatory scope, maybe the FDIC should first take accountability for its own shortcomings .

Wall Street Journal investigation detailed reports of sexual harassment, discrimination and interpersonal misconduct at the FDIC. Sadly, it wasn’t until Congress started calling for change did Chairman Martin Gruenberg say he was prepared to step down.  Instead of looking to unnecessarily expand its regulatory scope, maybe the FDIC should rst take accountability for its own shortcomings. Additional regulatory costs that solve no well-de ned problem would increase the costs of equity nancing of banks, which would particularly hurt smaller banks and result in less access to credit for borrowers — particularly small businesses and consumers that rely on bank nancing. These increased regulatory costs would also reduce returns for investors who hold bank stocks, many of which are pension funds. 

This focus on increased oversight brings the FDIC’s priorities into question.

While attempting to regulate banks and asset managers, the FDIC neglected its own housekeeping, leading to disarray. A recent

has a long runway. Indian manufacturers bene t from government programs (e.g., production-linked incentives help companies set up local supply chains).

Modi’s government targets $300 billion of electronic manufacturing by 2026, with $120 billion in exports. Also, the $9 billion “Semicon India” program is driving growth in India’s semiconductor ecosystem.

Digitization drives growth and financial inclusion

India’s digital economy has propelled its growth. Today, India has 880 million internet users with low data prices.

Since 2014, India’s digital innovations transformed payments (e.g., the majority of Indians now use the Uni ed Payments Interface, an instant payment system, to pay street vendors, drivers, etc.) In 2022, 46% of global real-time payments were in India. An increase in Indian e-commerce and rising digital literacy enables nancial companies to cross-sell loans and tourism.

The four pillars of India’s progress are shaping its growth trajectory, offering an exceptional long-term opportunity for alpha-seeking investors. Today, India represents about 1.6% and 15.6% of the MSCI ACWI and MSCI EM indexes, respectively.

Yet these allocations are suboptimal, given India’s strong long-term growth outlook. CIOs should assess a standalone allocation to

This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines but is not a product of P&I’s editorial team.

Indian equity as India is likely the only country today with a secular growth trend at enormous scale and with strong momentum, and Indian equity has had low correlation (0.5-0.6) to U.S. equity.  Most importantly, global investors can capitalize on opportunities in

Indian equity by investing with local managers with a proven track record of returns and consistent alpha.

This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines but is not a product of P&I’s editorial team.

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Pension risk transfer activity

ETFs holding asset-backed securities see net in ows

By ARI I. WEINBERG

Exchange-traded fund investors are venturing further into the xed-income market amid moderating views on interest rates paired with an expected credit default cycle that hasn’t arrived.

Through June 11, ETFs holding harder-to-index securities like collateralized loan obligations, nonagency residential mortgage-backed securities, commercial mortgagebacked securities, and other asset-backed securities, have added $6.5 billion in net in ows, compared with $3.9 billion for all of 2023, according to data from CFRA Research.

Collectively, these securitized credit ETFs managed $13.5 billion, led by the $10.2 billion Janus Henderson AAA CLO ETF (JAAA), having taken in $4.8 billion since December.

Securitized credit ETFs are the Johnny-come-lately for xed-income investors who spent the last decade acclimating to exposure to high-yield corporate debt and bank loans ETFs.

With $94 billion in aggregate assets under management across 79 distinct products, high-yield and loan ETFs are featured in a wide swath of investor portfolios, including insurance companies, university

endowments, and state and provincial pension funds. Even with spreads historically tight for much of the high-yield and senior loan market, this mix of 61 passive and 18 active products has already added $9.9 billion in net in ows through June 11, compared with $6.6 billion for all of 2023, according to CFRA.

Spreads on securitizations, on the other hand, still have room for improvement, according to the May Janus Henderson Monthly Fixed Income Relative Value Report. AAA CLOs, for example, sat at a 139-basis-point spread to the secured overnight nancing rate at the end of May, near the average of 145 and well within the historical range of 85 to 268 basis points.

“AAA CLOs have a large cushion from a safety standpoint,” said Vince Vitale, investment director at Advance Capital Management in South eld, Mich., which manages $4.3 billion in client assets, including nearly 4 million shares of JAAA. Beyond brokers and nancial intermediaries, specialty insurer Arch Capital Group, the State of New Jersey Common Pension Fund D, and Adventist Health System were all holders of JAAA as of March 31 lings with the U.S. Securities and Exchange Commission.

In CLO ETFs, investors get intraday liquidity and a boost in yield

over traditional money market funds, currently between 6% and 7% for the ETFs holding investment-grade CLO tranches compared with just over 5% for the largest institutional money market funds.

The growth of the CLO market, passing $1 trillion in outstanding issuance for the rst time since 2007, also provides a liquid alternative to the surging private credit market. While private credit fund investors have traded that liquidity for yields topping 10%, they’ve also sacri ced diversi cation, according to Bank of America Global Research.

cording to BofA.

"In the corporate market, we’re not getting paid for single issuer risk,” said Advance’s Vitale.

Ward Bortz, ETF portfolio manager and head of distribution for U.S. wealth at Angel Oak Capital Advisors, expects growth to accelerate for ETFs accessing securitized credit. Atlanta-based Angel Oak manages $17 billion in credit exposure across institutional funds, separately managed accounts, and nearly $1 billion in ETF assets.

Initiating coverage of CLO ETFs in April, BofA Securities Investment and ETF strategist Jared Woodard highlighted that CLOs are more diversi ed across sectors, with 44% exposure to its top ve sectors compared with 60% exposure for private credit. That diversi cation and aggregation of mostly middle-market loans has also compelled the CLO complex to a cumulative 10-year default rate of just 1% compared with 11% for single-issue corporates, ac-

Bortz points to the SEC’s 2019 ETF rule that, among other things, standardized the offering of actively managed ETFs with daily portfolio disclosure. This made it easier to bring to market a diversied credit product like the $205 million Angel Oak Income ETF, which can hold non-agency RMBS, ABS, CLOs and more. The ETF has added $100 million of net in ows since January, according to CFRA.

“Many of these securitizations are small issuances, and each securitization tends to be quite unique,”

Bortz said. “They can’t really t into a passive strategy.”

Of the 18 U.S.-listed securitized credit ETFs, 17 are actively managed.

The expected path of interest rates in the U.S. and the seeming soft landing for the economy has also spurred ETF investors back to riskier credits. The $919 million Janus Henderson B-BBB CLO ETF has added $776 million, or 85% of current assets, since December, according to the company. Its 30-day annualized yield was 8.36% as of May 31, according to Janus Henderson.

Other issuers in the CLO and securitized credit ETF market with products greater than $100 million in assets include BlackRock, VanEck, Panagram, PGIM and Invesco. Primarily built on oating-rate loans, these products offer little to no duration risk and less issuer and sector risk than ETFs holding single-issuer securities or loans.

John Kerschner, portfolio manager and head of U.S. securitized products at Janus Henderson Investors, believes that ETF investors who are just now wading into these products are likely to stick with them.

“They are instrumental in building robust xed-income portfolios that offer excellent yields and are less affected by interest rate volatility,” Kerschner said. 

DC MANAGERS

Big providers’ grip is holding rm on target-date assets

Despite a 27.8% increase in assets in 2023, the same 5 providers still control 80% of the pie

By ROBERT STEYER

As target-date fund providers continue to vacuum up retirement assets, the industry has morphed into two tiers: the ve largest providers with four- fths of the industry’s AUM, and everyone else battling for the rest, according to the Pensions & Investments' annual survey of de ned contribution money managers.

The big players are showing no signs that their grip might be loosening, making it tough for smaller competitors to gain clients and market share.

“It’s hard to differentiate yourself,” said researcher Jason Kephart, commenting on smaller providers’ challenges. “It’s very dif cult to stand out.”

Kephart follows target-date funds as director of multiasset ratings for Morningstar Research Services, a wholly owned subsidiary of Morningstar. He noted that the largest providers “aren’t standing still” when it comes to new products and/or expanded services.

For example, some major providers, including BlackRock, State Street Global Advisors and Nuveen, gure prominently in the relatively recent trend of embedding annuities in target-date funds, he said.

Also, they offer several types of target-date series such as passively managed, actively managed or a blend to give retirement plan sponsors and their members more choices. Fi-

delity Investments offers ve series, and T. Rowe Price and J.P. Morgan Asset & Wealth Management each offer four, according to research by Morningstar Direct covering 2023 data, which is not restricted to retirement plans.

Collective investment trusts are old hat by now. Most large providers have either separate CIT target-date funds or CIT versions of their mutual fund target-date series — or both, according to Morningstar Direct.

Runaway asset train

The P&I survey reported that target-date AUM climbed 27.8% last year to $2.92 trillion as of Dec. 31, and it grew by 101.7% over ve years, based on U.S. institutional, tax-exempt DC assets managed internally.

‘It’s hard to differentiate yourself. It’s very difficult to stand out .’ MORNINGSTAR’S JASON KEPHART

Target-date fund asset growth is no surprise, thanks to auto-enrollment and the dominance of target-date funds as quali ed default investment alternatives, consultants and researchers said.

A Callan survey of 132 DC plans reported that 90% used a target-date series as a quali ed default investment alternative last year. The survey, published in April, covered clients and non-clients.

Even when DC plans experience target-date out ows, more target-date money comes in, according to the Alight Solutions 401(k) index. The index re ects activity of more than 2

million retirement plan members with more than $200 billion in Alight record-keeping accounts.

Last year, target-date (and target-risk) funds posted the biggest trading out ows among all 13 categories in the Alight index, representing $704 million, or 39% of all outows. But those funds also represented 49% of contributions to 401(k) plans, or $8.3 billion.

Big get bigger

In the P&I survey, many of the biggest providers scored substantial double-digit AUM gains, most notably Vanguard Group, the industry leader by a mile, which posted a 44% increase in assets to $1.07 trillion. Second-place BlackRock gained 25.7% to $426.8 billion and third-place T. Rowe Price Group’s assets rose 23.6% to $362.5 billion.

The ve largest providers — Vanguard, BlackRock, T. Rowe Price, Capital Group and Fidelity Investments — accounted for about 81% of target-date assets in the P&I universe last year. Add State Street Global Advisors and J.P. Morgan Asset Management — placing sixth

and seventh — and the asset percentage rises to 92%.

The big guys’ dominance barely budged vs. 2022 when the top ve accounted for 79.6% of target-date fund assets and the top seven accounted for 91.5%. Five years earlier, the top ve accounted for 75.8% of assets.

Last year, target-date funds represented 33.4% of internally managed AUM in the P&I survey. Five years ago, they accounted for 24.8%

Given this history, consultants and researchers said smaller target-date providers face the daunting task of distinguishing their products, retaining and adding clients and managing a pro table business.

“We haven’t seen a big change in (target-date fund) replacement searches” among clients, said Greg Ungerman, de ned contribution practice leader at Callan.

“Sponsors are not incentivized to go out on a limb,” said Morningstar’s Kephart, because they will likely stay with providers that have long track records and services.

However, smaller providers shouldn’t give up trying to differentiate their products, add-

ing that they should know within three to ve years if their products are attractive, Kephart said.

“The market is so big that even if you have a 4% or 5% market share, that’s economically viable,” he said. “You don’t have to be Vanguard. You have to be pro table.”

Customization may be a way for smaller providers to get noticed by sponsors if they can offer something between an off-theshelf target-date fund and a managed account, said Idin Eftekhari, a senior analyst at Cerulli Associates.

Long-term investment performance, risk management exibility and a willingness to make price concessions are crucial for these providers as they try to get on record keepers’ platforms and attract sponsors, he said. It won’t be easy because the largest providers “have so much leverage” over price, he said. “Reputations take time to build in any industry.”

Custom target-date funds

When Cerulli asked 19 target-date fund providers about the bene ts of customization, the top choice (47%) was a more appropriate risk pro le for participants, according to a survey published in a March report.

Forty-two percent said participants would like the idea of an investment tailored to their circumstances and 42% said a customized target-date fund would be cheaper than a managed account. Multiple responses were allowed for this question containing six choices.

Cerulli also asked 20 providers if they would offer customized target-date funds in 2024 that would include information from record keepers such as gender, income and contribution rates. Half said this approach was “not likely.” Another 30% said it was “somewhat likely,” while 10% said it was highly likely and 10% said they already offer a customized product.

The Cerulli report said customized target-date funds must feature more data than the “basic pieces” record keepers hold. Cerulli cited health status, life expectancy, growth objectives, future withdrawal needs, outside income and future income sources as factors to produce a “robust” model for “more desirable” allocations for participants.

“You can build a better mousetrap, but if there’s no demand, it’s a waste of resources,” Eftekhari said. “You have to have your sales people educate the plan sponsors.”

A recent survey by Capital Group found that portfolio personalization and retirement income are major areas of sponsor interest,

wrote Chris Anast, client analytics director, adding that target date funds play a role in these strategies.

“Sponsors are not just looking at standard solutions to those issues like managed accounts (for personalization) or annuities (for income),” he said in an email. The Capital Group survey of 49 institutional DC plan sponsors found that 12% of sponsors already are using a customized target-date glidepath.

“Somewhat newer to the market has been the increase in services that offer a degree of personalization to target date at the participant level but stop short of being full-blown managed accounts,” the survey report said. “Unlike managed accounts, these solutions would not require additional personal information from participants and would make use of data collected from the record keeper.”

However, doubts remain about personalization “with 25% of those who had an opinion on the topic believing it would not improve outcomes,” said the report, adding that respondents were concerned participants would provide enough information “to make it work effectively.”

Still, the Capital Group report said the company expects “to see increased interest in evaluating how personalized asset allocation services can lead to better outcomes for participants throughout 2024 while ensuring fees are commensurate with the value added.”

Capital Group had $257.3 billion in internally managed U.S. tax-exempt institutional target-date assets last year, according to the P&I survey, the fourth largest target-date provider.

“Target date funds are an increasingly important feature within DC plans,” Brendan Curranhead of U.S. de ned contribution for State Street Global Advisors, wrote in an email. “We have seen this trend re ected in the growth of our target date funds, where we realized $15.5 billion in net ows into our U.S. target-date funds in 2023, and over $84 billion since 2018.”

Curran added that State Street is “seeing increased comfort with securities lending strategies'' as education and transparency of the lending program have improved considerably since the 2008 nancial crisis. “This is re ected in our target date assets where 21% of our AUM was in lending in 2018 compared to 48% at the end of 2023,” he wrote.

State Street had $187.1 billion in U.S. internally managed target-date assets last year, the sixth largest target-date provider, according to the P&I survey of U.S. institutional tax-exempt DC assets.  

The largest DC managers

The largest DC managers

The largest

CONTINUED FROM PAGE 1

managed ones in the domestic, international and global categories last year. Each index category outpaced its actively managed peer over ve years as well.

In a reversal from 2022, the largest asset managers experienced rebounding AUM.

First place Vanguard Group jumped 23% to $2.2 trillion. Second place BlackRock notched a 24% gain to $1.44 trillion. And Fidelity Investments, in third place, surged 33% to $1.32 trillion.

Among the highlights for internally managed institutional tax-exempt DC assets:

■ For U.S. domestic equity, actively managed investments rose 14.4% last year to $2.06 trillion, but index-based investments outpaced that growth and climbed 25.3% to $2.95 trillion.

■ Active non-U.S. equity grew by 4.9% to $308 billion while passive investments advanced by 29.1% to $305.7 billion.

■ Actively managed global equity investments rose by 9.2% to $67 billion. Passive investments gained 24.7% to $134.3 billion.

“We’ve seen passive investments gain traction among sponsors to provide a choice

for participants,” said David O’Meara, senior director and head of de ned contribution investment strategy at Willis Towers Watson.

“It’s hard to have a blanket explanation” about why participants are choosing more passive investments that active investments in the past, but fees play a major role “not just in the industry but also in pop culture,” he said. Even if active funds outperform passive peers, some participants will still choose the index fund, he said.

The challenge for active managers is to “be more ef cient with resources and more competitive with costs,” even if they can’t match the price of index funds, he added.

The push for more passively managed options has been led by the largest retirement plans as well as the growth of managed accounts, “which tend to favor index funds,” said Greg Ungerman, de ned contribution practice leader at Callan.

Reduce fees, litigation risk

Pressure to reduce fees and to reduce litigation risk are important reasons why plan sponsors offer index funds, Ungerman said.

Research by Morningstar shows that passive investing’s prominence has extended well beyond retirement plans.

“Less than one out of every four active strategies survived and beat their average

REPLACEMENT: Schwab Workplace Financial Services’ Traci Stahl sees pure index target-date funds becoming plan QDIAs.

“Long

the report said.

U.S. large-cap

403(b) plans

Ranked by investment strategy

Morningstar’s research, which tracks mutual funds and isn’t restricted to retirement plans, covers 8,338 unique funds with about $18 trillion in assets. Forty-seven percent of active strategies beat their average passive counterpart last year, up from 43% in 2022, the report said.

“We see more plans choosing to replace active or active/passive target date funds with lower-cost pure index target date funds as the plan QDIA, including increased use of index CIT target-date funds,” Traci Stahl, chief operating of cer of Schwab Workplace Financial Services, wrote in an email describing the company’s 401(k) plan record-keeping clients.

“We expect this trend to continue,” wrote Stahl, noting that sponsors and consultants “keep an eye on the litigation landscape,” which leads to their choice of passive investments.

Among core menus, Schwab clients also are choosing more index funds, especially in equity categories, Stahl added. “Typically, these funds are additions, not replacements,” she wrote. “Plans with active equity funds in their menu tend to leave those funds in place even when adding index equity funds.”

Charles Schwab had $37.7 billion U.S. institutional tax-exempt assets under management as of Dec. 31, 2023, up 25% from 2022,

according to the P&I survey.

(Less)

stable value

Last year’s rising tide of AUM didn’t lift all investment boats: stable value AUM sank by 20.6% last year to $280.1 billion. Over ve years, stable value AUM was down 25.7%.

Many of the biggest stable value managers had double-digit asset declines last year, including top-ranked Allspring Global Investments, down 12.1% to $54.1 billion.

Vanguard Group, ranked sixth, saw assets fall 13.7% to $23.5 billion; seventh-ranked Paci c Investment Management Co.’s assets sank 15.4% to $15.3 billion; and Voya Investment Management, in ninth place, experienced an 18.8% decline to $11.7 billion.

Each of the 10 largest stable value managers suffered AUM declines. This group accounted for 93% of stable value assets tracked by P&I

“Stable value ows tend to be more responsive to equity markets” than other factors, said WTW's O'Meara, noting that slumps in equities prompt some retirement investors to seek greater safety — at least until equities recover.

In the P&I survey, the equity allocation rose to 68.4% of overall DC managers’ asset mix last year vs. 66.4% in 2022 while stable value

Christopher Irion

Retirement plan advisers put AI to use to educate participants, win clients

By MARGARIDA CORREIA

For retirement plan advisers, it’s a dream come true: help with drafting proposals, near-instant summaries of complex legislation and even personalized educational videos for retirement plan participants.

These are all things advisers can ask articial intelligence chatbots to do — and advisers aren’t shy about asking.

As advisers look to become more productive, they are leaning into AI and looking forward to what it can do in the future.

Adviser Emily Wrightson, a principal at CAPTRUST, uses AI daily in her work with retirement plans and sees it as a powerful force that will dramatically improve adviser productivity and become as indispensable as the internet is today.

“I know for a lot of people, change is scary and that evolution is scary, but I think like anything we have to adapt and evolve,” she said, adding that the use of AI is just beginning.

“It will just snowball, just like the internet,” she said.

Wrightson, whose rm oversees $852 billion in assets, uses both ChatGPT and the company's internal chatbot, CAPPY, to distill complex topics for clients so that they can make decisions more easily. She uses AI, for example, to quickly summarize white papers and investment research reports, examine documents and “hone in quickly” on different sections of legal contracts.

Wrightson also uses it to get a quick summary of the market outlook of economists and large asset managers.

“It can be used to synthesize huge amounts of data in an incredibly short amount of time,” Wrightson said.

Robert Culberson, managing director of client relations at OneDigital, also uses AI in similar ways. He uses it to explain complicated topics like compliance testing and SECURE 2.0 regulations to plan sponsor clients.

Culberson, for example, might use Microsoft Copilot to explain a change in a plan’s matching formula, such as a switch from a basic safe harbor match to an enhanced safe harbor match or a safe harbor non-elective contribution or even a quali ed automatic contribution arrangement or QACA safe harbor match.

The chatbot would help him articulate the change “in a way that connects with the plan sponsor at their level of comprehension” and then “very easily phrase and then rephrase an explanation," Culberson said.

AI would explain each of the options in “plain language” and provide “multiple styles of explanation” tailored for different people. Someone without a nancial services background, for example, might get an easier, more streamlined explanation than someone with a nancial services background.

Plan features can be very technical and

dropped to 4.3% from 6.3%.

O’Meara estimated that 10% to 20% of his clients replaced their stable value options with money market funds or short-term bond funds after the economic crisis of 2008-2009.

“Those who moved out generally had bad experiences with stable value,” he said. Some sponsors decided that money market funds or short-term bond funds were simpler to administer and easier for participants to understand, he added.

Of those clients who moved away from stable value, “I can probably count on one hand

hard to explain because they’re based on regulations written by ERISA attorneys and people who work at the IRS and Department of Labor, Culberson said.

“I am asking for a response that is free of nancial services industry jargon,” he said.

“It'll be more plain language and the acronyms will be broken out into their individual component words.”

Culberson, whose rm has more than $100 billion in assets, also uses AI to summarize difcult passages or provisions in IRS or DOL regulations.

“It's a way you can take a large volume of legalese retirement plan legislation or retirement plan regulation text and distill it into something that's more bite-sized and accessible for plan sponsors,” he said.

John Steiger, president and founder of Wealth Planning Resources, uses AI to write proposals and create email and marketing materials, including copy about pooled employer plans that he plans to use to update the rm’s website.

“If you’re going to write a proposal or an email, it’s super easy to get ideas and information,” Steiger said.

how many came back,” he said.

Some retirement plan investors probably moved some stable value money to a money market fund — assuming their employer offered both options — in part because rising interest rates can improve money market funds’ attractiveness, at least in the short run.

However, researchers and consultants say such a switch may be short-lived when rates decline to — or near — the low-yield levels of a few years ago.

“It might not be just money market funds,” said Callan's Ungerman, commenting on reasons participants might reduce stable value holdings. “Participants at the margins will chase returns.” One possibility is shifting some money into a self-directed brokerage account, he said.

Gidwaney explained that AI technology takes an employer’s 401(k) plan document and generates a video script, which can be translated into any language.

Future projects

The rm is also working on several forward-thinking projects that will be released in the future. One involves helping participants visualize their retirement by creating an image of what they see for themselves as retirees. If they see themselves sitting in a café in Paris with their spouse, AI would create an image of that scene to help focus participants on what their retirement would look like, Gidwaney said.

“Calculators only go so far, and people use them and they're helpful, but they may not always convince you to do the right thing,” he said.

CAPTRUST is also working on a series of AI initiatives to help make advisers more productive, including an improved rmwide chatbot that is expected to launch in July or August.

The rst version, which was released last November just a few months after the AI “craze” began, “didn’t deliver 110% what people want,” said Jon Meyer, CAPTRUST’s chief technology of cer.

The original chatbot gave high-level generalized advice, but what the rm needed was very specialized technical advice on nuanced topics like ERISA and SECURE 2.0., which Meyer described as “the bread and butter of what our institutional advisers do.”

“At a detailed level, we were challenged to always produce the correct or right answer that an expert would pick,” he said.

The rm is also rolling out an online tool called Researcher that creates quick research papers on any topic by mining different search engines. Advisers, for example, can ask Researcher to give them the business case for why Nvidia is overvalued.

Increase productivity

Retirement plan advisers generally view AI as a way to increase their productivity and become better communicators and not as a threat to their future livelihood.

AI is not about telling clients what to do or how to invest their portfolio, said Vinay Gidwaney, OneDigital’s chief product of cer.

“AI is a wonderful communicator,” he said. “It is not a great calculator.”

The rm is rolling out a series of tools for advisers, including an “AI companion” to help them create the rst draft of their responses to requests for proposals. The responses can be tailored with chief nancial of cers receiving differently worded proposals than those sent to, say, the head of bene ts, according to Gidwaney.

The rm is also rolling out educational videos for plan participants that use avatars of their advisers. The avatar speaks to plan participants about their retirement plan, giving them a more personalized experience, while freeing up advisers’ time.

Rather than “sitting there” recording the video, advisers can now have AI do that, Gidwaney said.

Rising rates haven’t dissuaded consultants from recommending stable value as their top capital preservation recommendation for clients, according to a recent survey of consultants by Paci c Investment Management Co. Ninety-six percent of the 27 respondents recommended stable value while 48% recommended money market funds, 19% recommended general accounts and 4% cited short-term bond funds. Multiple responses were allowed.

Other research shows money market funds haven’t made much impact on 401(k) plans regardless of interest rates.

Money market funds have accounted for at most 1.1% — and as little as 0.8% — of assets among 13 categories tracked by the Alight Solutions 401(k) Index from 2019 through

The idea, said Meyer, is to give advisers the ability to “speed their work on primary research tasks that normally they’d have to do manually.”

Meyer estimates that some 50 advisers are using the Researcher tool even though it has not launched rmwide yet.

CAPTRUST has also introduced an AI data-intelligence tool that dramatically reduces repetitive data entry.

The tool is especially valuable to the rm’s de ned bene t practice, which spends a great deal of time calculating plan performance, a tedious task requiring heavy data entry.

“We have found with these new tools that we can digitize a lot of that, and what used to be a three- or four-hour data entry process can go down to two or three minutes,” Meyer said.

The tool can even make it easier for advisers to get paid.

Meyer explained that when a check from a client is received, it has to be divided among all the different advisers involved.

“That used to be something that people did data entry on, and now most of that is done very quickly,” Meyer said. “That check that might be $50,000 now has all the details to split it out among all the people who are getting payments uploaded in a matter of a minute.” 

2023. The allocation was 1.1% for the rst quarter of 2024.

Stable value’s allocation ranged from 7.3 % to 9.6% between 2019 and 2023. The rst quarter 2024 allocation was 8.4%.

DC plans usually offer participants stable value or a money market fund rather than both, said Robert Austin, Alight’s director of research. “They don’t have a choice,” he said.  For large plans, “there’s no super compelling reason” to change from offering stable value to offering money market funds because stable value is the best choice over the long term, he said.

The Alight Solutions 401(k) index re ects activity of more than 2 million participants with more than $200 billion in Alight record-keeping accounts. 

Neil Webb/The iSpot

To

To

one big credit market. And so this is how we’ve designed our rm,” he said. Marathon’s asset split between private and public credit is, by design, 50-50.

And Richards sees parallels to the past. He pointed to what the Basel III reform measures did for the growth of direct corporate lending in the aftermath of the global nancial crisis, with the segment growing from $100 billion in assets to $1.7 trillion — a gure Richards argues with leverage is actually $3 trillion.He contends that could happen with asset-based lending.

“Basel III did for direct lending, and its growth as banks pulled back and the void was lled by fund managers, what Basel III Endgame, which start starts next year, will do for asset-based lending,” he said.

Marathon has been ramping up asset-based lending in anticipation of banks ceding market share, Richards said.

The rm invests in variety of asset-based lending, including transportation with aviation, maritime and ground logistics; healthcare; commercial and residential real estate nance; consumer nance and specialty nance, which includes areas such as royalties, litigation and synthetic risk transfers, and credit risk transfers. Partner and portfolio manager Ed Cong leads the business.

“We believe asset based lending, which is right now less than $1 trillion in fund size will grow to $4 to $5 trillion in the next 10 years,” Richards said.

First inning

And Richards thinks institutional investors will take part in the growth.

“We believe that the pension plans, endowments and foundations are just in the rst inning of allocating to asset-based lending, whereas

they’re in the middle of the game of direct lending exposure, corporate middle-market direct lending exposure. And so that balance, I believe, is accretive because asset-based lending traditionally has generated a slightly higher return with less volatility with a lower loss rate. And that’s the appeal of asset-based lending.”

At the same time, Richards said Marathon has “never been more active than we are today in direct lending.”

Many other competitors have moved up market and are doing bigger and bigger deals leaving a “bit of a void for the middle markets,” he said. Curt Lueker heads Marathon’s direct lending team.Credit markets have seen tremendous growth since the last huge distressed cycle in 2008-2009. Back then, the size of the high-yield market, in the U.S. and Europe, the leveraged loan market, and private credit market combined was $1.7 trillion. Today, Marathon estimates that total at $6 trillion, Richards said.

The current situation of higher-for-longer rates and economic strength means there will be selective defaults in what will be a long, drawn-out cycle, Richards said.

“There’s the have-nots because there’s a tale of two cities,” he said. “And so for 95% of the companies in the high-yield market, they’re doing ne in this market. There’s no stress. There’s no distress. But for ... 5% of the $6 trillion number, $300 billion, there’s a lot of pressure points, servicing debt.”

Richards said Marathon has 150 companies on its list now that are stressed or distressed and in need of capital solutions.

“We’re incredibly bullish on the opportunity for capital solutions, opportunistic lending, given the degree of distress that’s in the marketplace,” Richards said.

Another area Richards is bullish on is the collateralized loan obligation market, especially CLO equity.

BRIGHT OUTLOOK: Marathon’s Bruce Richards sees asset-based lending possibly quintupling in the next 10 years.

Karen Lau is portfolio manager on leveraged loans and CLOs. (CLO equity means the investor has levered exposure to senior secured collateral of the CLO).

“We believe CLO equity is one of the underappreciated assets that have consistently, through the cycles, outperformed,” Richards said.

More regulation, risk factors

With the swift growth in private credit assets in recent years, Richards sees more regulation coming.

“I think there’s going be more regulation in time. Is that a good thing? That’s a good thing. That the rules to the game should be clearly de ned. And more regulation around those rules is better, rather than no regu-

lation,” he said. “And the shadow banking system should not be a shadow, but is mainstream now. It’s time for mainstream regulation, to better de ne any of the criteria they think is critical for our industry. And we welcome that.”

Richards says that’s “inevitable” as “banks are further disintermediated from the lending community, and the private credit markets, and the private credit fund managers are such a big part of nance, and greasing the wheels of this economy.”

He points to two major risk factors he spends time thinking about: geopolitical risk such as a black swan event and economic risk centered on in ation.

“I think we’re going to be in this

market of higher for longer,” he said. Another long-term risk factor Richards points to is big government de cits coming from both sides of the aisle.

“Given how strong our economy has grown, we should be running surpluses, not de cits. The spending is too much. And so what that’s going to result in is most probably, most likely, higher taxes. But we also need to get our scal house in order because it’s the strongest country in the world. And we want to remain that way. And to remain that way, I believe, you have to have scal discipline,” he said, adding that he sees this as a big risk factor for the next generation.

Succession planning

Richards and Hanover co-founded Marathon and have run it together, but are already thinking about what succession will one day look like.

“What’s critical to us, in the next ve to 10 years is to identify the senior leadership team at Marathon, so when a transition comes, it’s properly transitioned to the next generation of leaders,” Richards said, adding that they’ve already identi ed those leaders in the form of eight partners, 20 members of the rm’s executive committee and other recent senior hires.

And while Marathon has now passed the 26.2 marathon mile maker in terms of age, Richards said the rm is “just getting started.” Richards grew up in the Washington area and credits his parents who worked seven days a week in retail as in uencing his work ethic.

“The global credit markets are enormous. They’re getting bigger and bigger and bigger. It’s such a critical part of nance for every company, for every household, for every real estate project, for countries in the developing world, for asset owners throughout the world, and Marathon … plays a critical role and in this portion of the economic machine,” he said. 

CONTINUED FROM PAGE 4

of our peers will not have as of today,” he said.

Nightmare opening accounts

One source described the process of opening an onshore account in India — necessary for trading Indian bonds — as a “nightmare,” while others agreed that it was a challenging situation that somewhat dampens excitement.

“It is quite an onerous process to open (an account in the) onshore market, and then actually trade,” said Mark Evans, an analyst in Ninety One’s xed income team, responsible for Asian bond and currency markets. “I think people focus a lot on the fact that it takes a long time to open the accounts and paperwork — but it’s not just that: It’s the bit once all that is done, the physical trading of Indian bonds thereafter (is) where it gets quite tough,” he said. “It’s a long process — (investors) need resources to be able to run this. We have a whole team dedicated” to accounts opening, he added. Ninety One had $159.2 billion in AUM as of March 31.

The hope is that India will ease the process over the coming 10 months before it hits its 10% weighting, when “all of us (will be) trying to access India at the same time,” Evans

said. There are test trades ongoing, with traders “trying to iron out the cracks, and the hope is that over time, a lot of these dif culties that managers are facing are ironed out in that period.” Foreign investors, the local regulator and participants in the local bond market need “to be fully aware of the dif culties faced by small, medium and large-sized asset managers,” Evans added.

And investors that think they still have time to get involved ahead of India’s inclusion may be left disappointed, and need to have a Plan B.

“There will also be some investors who may still be opening accounts and completing the onboarding processes to be able to trade Indian government bonds. Some of these probably won’t be ready in time for the end of June and so they will be preparing alternative options to ensure they can gain exposure,” LGIM’s Collins said.

Two options are to buy rupee-denominated supranational bonds, which don’t require domestic accounts and settle in U.S. dollars, or to invest via an ETF, Collins added.

Rong Ren Goh, portfolio manager, xed income at Eastspring Investments, said opening onshore accounts to trade Indian bonds “can still take notoriously long — we are talking about several months.”Another disadvantage is the withholding tax that foreign investors are subject to in India. Currently set at up to 20%, this tax could discourage

investors from going directly and instead go via swaps — although sources added that leaves them open to basis risk.

And the tax calculations on capital and coupon gains can also take longer than usual — “which can in turn affect the settlement cycle of bond proceeds and FX, cascading into trade and settlement failures,” Goh said. “These continue to be issues that investors will have to grapple with.” Eastspring Investments, part of Prudential PLC, has $239 billion in AUM.

Beyond specifics

Aside from the onerous process and tax implications of investing in India’s bond market, emerging markets managers are also concerned about the impact its admission to the index will have on existing countries in the club.

“The impact could be bigger on those that lose — if a big weight is coming in at 10%, some others have to give (their weighting) up,” Carl Vermassen, portfolio manager in the emerging markets bond team at Vontobel Asset Management, which had 206.8 billion Swiss francs ($245.7 billion) in total assets under management as of Dec. 31.

Indonesia and China will remain at the 10% weighting they have enjoyed for some time. Malaysia and Brazil will see their weightings fall to about 9.5% and 9%, respectively, but the countries Vermassen will be

watching is Poland — expected to fall to about 6.5% — and Thailand, which drops to about 8%, he said. Ninety One’s Evans agreed that “for the rest of the emerging markets, the impact is more meaningful,” naming Thailand, Poland and also South Africa as bearing the brunt of India’s inclusion in terms of weighting, with those countries losing out of investment in ows due to the change. However, he doesn’t think it will be “destabilizing — I don’t think it’s a signi cant cannibalization” of those markets, he added.

Relative to China

But of course, there are pluses to adding India to the index.

Sources pointed out the attraction of India relative to China — in particular, when it comes to yields and tail risk associated with geopolitics.  Indian government bonds are yielding about 7%, vs. about 2% for China, and it is also “relatively low volatility,” Ninety One’s Evans said. “India will give relative amount of protection and a bit of yield. That does make including India more attractive for the asset class,” he said.

While there are similarities between China and India’s local xed-income markets, particularly in relation to their deep investor bases, market liquidity and lower beta to global xed income, there are attractive differences, said John Espinosa, portfolio manager for Nuveen’s global xed-income team and

sector lead for sovereigns.

”While China’s bond market is larger, we believe India’s greater yield differential, improving scal and in ation developments, and better geopolitical risk pro le make India the more attractive investment of the two,” Espinosa said. “Furthermore, given elevated geopolitical tensions between China and the West, we have observed foreign investor out ows away from the Chinese government bond markets over an extended period. We also note investors increasingly seek EM local bond benchmarks that exclude China, so the timing of the inclusion of India into such indices enhances diversi cation and yield for investors.”

Nuveen has a total $1.2 trillion in assets under management.

Gustavo Medeiros, head of research at emerging markets specialist Ashmore, agreed that India “offers a much higher potential GDP growth than China” on a structural basis. “India has better demographics, debt pro le and is better positioned in geopolitical terms,” he said. China’s inclusion in the emerging markets index in 2018 “improved the volatility pro le as ... China’s monetary policy has had low correlation with the rest of the world,” and Medeiros expects a similar impact on India. “But India offers better forward-looking fundamentals and higher yields, making it a much more exciting story,” he said.

Refining the DC Investment Menu: An Outcomes Orientation

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CONTINUED FROM PAGE 4

managing director and head of Asian xed income at the $545 billion Principal Asset Management.

“There are many predictions around ows ... anything between $20 to $30 billion. But the main thing from an investor point of view is to know that this is a country on a structural, longer-term basis. It's very attractive for the yield, the credit rating, and that's why it is a story that's kind of exciting,” he said.

Credit rating

India’s credit rating also has a chance of being upgraded to BBB from BBB-, which makes it only one of two big countries — the other being Indonesia — that are “proper investment grade” and on an upward trajectory, Wan added.

The market index inclusion is a new phenomenon, but the Indian local currency bond market has been looked on favorably for a number of years, said Leonard Kwan, portfolio manager for T. Rowe Price’s dynamic emerging markets bond strategy, in response to questions at a media brie ng in Singapore on June 11.

T. Rowe Price has $1.48 trillion in assets under management.

“The reasons for that is that it's actually a very big liquid domestic market with high yields of over 7%, and it's also got a volatility pro le that is decorrelated from global rates. So from a portfolio perspective that actually offers good diversi cation with attractive yields,” said Kwan, who is based in Hong Kong.

India’s local currency bonds are also sensitive to domestic fundamental drivers, which are looking positive for bonds, he said. For instance, the in ation outlook is on the downtrend in India, which is supportive of bonds.

The index inclusion will lead to portfolio in ows, which paints a supportive picture, he said, but it will not be a material driver for the compression of yields. He added that the bonds are also well-anchored domestically by large pools of domestic buyers, which means it is less sensitive to international bond ows.

Further in ows are likely to continue, as Bloomberg Index Services

ON

announced in March that it would include India government bonds in its Emerging Market Local Currency Index starting January next year, said Nafez Zouk, emerging markets sovereign debt analyst at Aviva Investors in a written commentary. Aviva Investors managed £233 billion ($294 billion) as of March 31.

India is also expected to undergo rapid growth in the coming years, which will help reduce its debt burden of around 80% of gross domestic product, he added.

“The Indian government aims to reduce its de cit to around 4.5% of GDP in the coming years. While that is large relative to the pre-pandemic period, much of this increase is explained by increased government spending on infrastructure,” he said.

Surprise election

In addition, despite the country’s recent surprise election results, ows into local currency sovereign bonds are not expected to be derailed, investment managers said.

The general election, which closed on June 4, resulted in the re-appointment of Prime Minister Narendra Modi, but his Bharatiya Janata Party failed to win a parliamentary majority, leading to a coalition government for the rst time in a decade.

The election result will not have a

negative impact on India’s bond outlook, said Kenneth Akintewe, head of Asian sovereign debt based in  Singapore at abrdn, in emailed comments. Abrdn manages and administers £495 billion ($630.2 billion) of assets on behalf of clients as of Dec. 31.

“The supply/demand dynamic for bonds (is) still very favorable and in ation and policy rates (are) still biased to come down. Indeed, the kneejerk response of higher yields and some currency weakness could indeed be an attractive opportunity to add risk,” he wrote.

Modi might face increased difculties in implementing the more challenging reforms such as land, labor and certain agricultural reforms, but the BJP has proved itself resilient throughout the last decade, Akintewe said.

On the ip side, a coalition government might not mean a more challenging environment for markets to perform, said Rahul Ghosh, Singapore-based portfolio specialist for global equity at T. Rowe Price.  Historically, coalition governments in India were in power when India enjoyed some of the best stock market returns, he said. There is a fundamental level of optimism in the economy today and regulation can help support a positive market cycle, he said.

CONTINUED FROM PAGE 3

options worth up to $55.8 billion passed with about 72% of votes cast in favor, Tesla said in a regulatory ling June 14. That’s roughly 1 percentage point shy of the support Musk received when the company rst proposed the pay package in 2018, according to Bloomberg.

Vanguard votes yes

Meanwhile, the company’s largest outside shareholder, Vanguard Group, voted for Musk’s pay package. Vanguard holds a 7.2% stake in the company, according to regulatory lings. BlackRock is the next largest outside shareholder with 5.9%. It’s unclear how BlackRock voted, and the rm declined to comment. Vanguard had voted against Musk’s compensation package when it was rst approved by shareholders in 2018. But “given the strong alignment of executive pay with shareholder returns since 2018 and the

bene ts the board asserted related to the motivational value for the CEO in preserving the original deal,” Vanguard-advised funds voted for the rati cation at Tesla’s annual meeting, according to a note to investors.

The note was made available June 14 on Vanguard’s website to the manager’s more than 50 million investors. Vanguard had 232 million Tesla shares as of March 31, second only to the 13% stake held by Musk.

CalPERS, CalSTRS vote no America’s largest public pension fund, the $499.7 billion California Public Employees’ Retirement System, Sacramento, voted against the pay package.

CalPERS was joined by a number of other asset owners that own Tesla shares to oppose it, including the $332.5 billion California State Teachers’ Retirement System, West Sacramento; New York City Comptroller Brad Lander, who serves as the custodian and a trustee for the New York City Retirement Systems, which consist of ve pension funds with $264.3 billion in total assets;

$46 billion National Employment Savings Trust, London; $43 billion Railpen, London; $20 billion AkademikerPension, Gentofte, Denmark; $1 billion faith-based endowment United Church Funds, New York; and proxy adviser Shareholder Association for Research & Education.

CalPERS CEO Marcie Frost told a June 12 board meeting: “I want to clearly state for the record, that we did not support the CEO compensation package when it was rst approved by shareholders back in 2018, and we will not support it this year.”

CalPERS owns nearly 9.2 million Tesla shares.

Other pension funds that voted against the pay package included North Carolina Treasurer Dale Folwell, who oversees the $121.7 billion North Carolina Retirement Systems, Raleigh; Oregon Investment Council, which oversees the $93.6 billion Oregon Public Employees Retirement System, Tigard; and the $63.3 billion Tennessee Consolidated Retirement System, Nashville. Spokespeople for all con rmed the votes but declined to provide further comment. 

STAYING

TRACK: Investors are taking the results of India’s elections, in which Prime Minister Narendra Modi’s party failed to win a majority, in stride.

Recruiting diverse talent even more important now

Panelists call for renewed drive to hire, develop next generation amid pushback

By CARYL ANNE FRANCIA

As diversity, equity and inclusion comes under pressure from politicians and business leaders, those working in institutional asset management to advance DEI could say they’re going backward.

“Spoiler alert: Yes, we are. In this moment, we are,” said Michelle Thompson-Dolberry, chief DEI ofcer at MFS Investment Management.

Representing the $624.1 billion investment rm, she is one leader who opened up about the state of diversity in the wealth and asset management industry at the Nicsa 2024 Fearless Leadership Symposium in New York on June 12. As these investment professionals work to advance DEI, 28 states in the U.S. have either introduced or passed anti-DEI laws, according to a Seramount report.

“It’s almost disingenuous to say that it’s not really dif cult to be doing this work in this moment, but (it’s) certainly never been a more important time,” she added.

Efforts to promote DEI ramped up amid the racial awakening following the killing of George Floyd in May 2020. In the ensuing years, DEI in

the U.S. has become polarized and political, said Omar Aguilar, the CEO and chief investment of cer at Schwab Asset Management.

When he started in the industry nearly 30 years ago, “there was no concept of the word diversity (or) anything that had to do with that,” so “where we are today, just by having this discussion, we have made progress,” he added.

As head of the $1.2 trillion investment management unit of Charles Schwab, Aguilar continues to push for diversity. Originally from Mexico, he wants to see more Latinos, like his three daughters, in the workforce.

“It is very important — call me sel sh — for me to continue to see the evolution because when they get out of school, they need to be seen as potential opportunities to just show the value they can bring for that diverse component,” he added.

Generation Z

As their workforce ages, investment managers such as Fidelity Investments are hiring from Generation Z, which is more diverse ethnically and racially in comparison to other age groups.

Chief Operating Of cer Bob Adams said the $5.3 trillion investment rm is driving its diversity and inclusion efforts signi cantly “in terms of bringing in new talent and younger professionals for what I believe

aircraft leasing and infrastructure debt.

are positive in the right reasons.”

“There’s just a ton to learn from these folks,” he added. “From my perspective, I absolutely know they see the world differently than I do for so many reasons … they are more re ective of what’s going on in society today.”

Recruiting efforts should be “speci cally targeted at achieving a diverse set of candidates in your organization, whether that’s through internships (or) new professional employee programs,” Adams said. Fidelity looks at regions that are geographically diverse. The rm has established a strong relationship with the University of North Texas, Denton, and recruits from its diverse

student body.

It’s critically important to meet with younger professionals for feedback. “There is a two-way street element to this” the COO said, in which he attempts to learn from them and equally hopes “that they are attempting to learn from” him.

If managers want  employees to continue to succeed in certain roles in the coming years, they have to develop their talent, said Erika Irish Brown, chief DEI of cer and global head of talent at Citigroup.

Succession planning doesn’t guarantee a potential successor, but rather trains someone to become a candidate for a role, she added.

“You want them to be a ready-now

payment obligations.”

SCERS has an annual investment return target of 6.75%. The system was on pace to meet that target again with SCERS returning 3.9% net of management fees halfway through its scal year that ends June 30, according to a performance update document.

Over ve- and 10-year periods ended December 2023, SCERS reported net returns of 9% and of 7.1% respectively.

Cautious approach

Davis, who became CIO in 2016, said SCERS has taken a prudent and methodical approach to private credit. SCERS added private credit as an asset class in 2017 starting at a 4% allocation that has now grown to 5%, and it has performed well, Davis added.

“It’s a nascent asset class. There’s a lot of capital from the LP side and a lot of GPs that are raising funds. So we’re still approaching it fairly cautiously,” he said.

SCERS has looked at private credit from two lenses. The rst is direct lending, what Davis describes as straight down the fairway, middle-market corporate lending. That accounts for about 60% of SCERS’ private credit allocation and Davis said they’ve preferred to allocate with fund-of-one structures and evergreen structures, as opposed to a closed-end vehicle so they can control the investment guidelines, use of leverage and capture better terms. The other portion is what SCERS calls opportunistic lending and includes asset-backed lending, royalty-based lending including healthcare and entertainment royalties,

“We’ve actually found a lot to do there. And it’s where we probably nd the most compelling opportunities,” Davis said.

With the boom in private credit, growing to an over $1.7 trillion asset segment, Davis said it’s important to align with managers who have workout experience and have managed through cycles.

“Anywhere you look in privates right now, you have to be cognizant of understanding what the true valuations are. And some private credit managers mark to market, some have marked to market less,” he said.

“So it’s really just eyes wide open that even though generally it’s performed well and there hasn’t been much in the way of negative returns when other classes have, it’s being cognizant that it really comes down to valuations and where GPs are holding their valuations.”

Other alternatives

SCERS has allocated to hedge funds for almost 20 years, Davis said, but its investment program has evolved and so has the role of hedge funds in the portfolio.

“Their role is to help mitigate downside risk in the portfolio, but still generate a positive return over a cycle. So we’re not looking for equity-like returns, we’re looking for low to negative correlation with other parts of our portfolio,” he said, noting that about three-quarters of relationships are direct with the remainder in a fund of one in a fundof-funds format.

In recent moves, SCERS made a discretionary global macro $50 million allocation in January 2023 to Tudor BVI Global Fund, managed by Tudor Investment Corp., according to an investment report, and a January 2024 $50 million allocation to

long-short equity manager Junto Capital Partners. The Absolute Return allocation sits at 6.4% as of June 7.

Amid the rising popularity of multistrategy hedge funds, including many with high pass-through fees, SCERS has not directly allocated to a pass-through fee structure, Davis said, which is a fee model that allows managers to pass on the costs asso-

‘Like most folks, most institutional investors, (private equity) did so well and other things … poorly that we suffer from the denominator effect in terms of the size of the allocation. We are still committing capital ... The budgets are a little bit smaller.”’

SCERS’ STEVE DAVIS

ciated with running their funds to investors.

“It’s a very unique structure. And we understand that there’s a lot of competition for talent among multistrats. But it’s also an open-ended structure with very limited caps on fees and expenses,” he said. “So it doesn’t mean we won’t do one, we’ve just been able to nd some really great managers throughout our portfolio that do not have that structure. And I think if we did it, it would take really education with our board and making sure our board is comfortable with that type of structure.”

On private equity, Davis said SCERS has a “mature” portfolio and has been investing in the space for almost 20 years. The pension fund has an 11% target allocation.

“Like most folks, most institutional investors, it did so well and other things … poorly that we suffer from the denominator effect in terms of the size of the allocation,” he said.

“So we are still committing capital ... just with our forward budgets, we re ected the fact that we’re overweight. The budgets are a little bit smaller.”

With much less deal activity, Davis said, “it’s a different environment.”

“So it’s just we’re focusing on our core GP relationships. We’re looking to add new GP relationships where it makes sense and really just trying to manage the allocation,” he said.

Real estate has been one of the asset classes that has lagged for SCERS, returning -5.3% for the last two quarters of 2023, according to an investment performance update. Real estate has a 9% target allocation.

SCERS rotated away from of ce real estate to industrial over the last 10 years following the advice of a member of the investment team who came from a real estate development background, Davis said.

“We tend to be a little more thematic in the noncore,” Davis said.

The pension fund has made investments in ambulatory and medical of ces tied to large healthcare systems and with a manager active in the Nordic region.

“We have been looking at data centers and cold storage. So that’s obviously an area that has a lot of secular tailwinds behind them. But there’s also a lot of capital that’s going into those spaces. There’s always a balance,” he said, adding that in the space overall “some things have to play out before we get really, really

WEIGHTY MATTERS:

candidate for the role, so you have to invest in them,” Irish Brown said.

“That’s what we should be doing if we want to retain our top talent, people have to feel invested in and developed — and that’s across all dimensions of diversity.”

But employers caution if their values don’t align with these young professionals, they may feel inclined to leave.

“I wouldn’t stay too long at an organization that the rm’s values don’t align with your values,” Adams said. “You may be able to drive change, but at some point, you’ve got to be able to determine ‘is it right for you or not?’ But never compromise who you are.” 

constructive.”

Managers and mission Davis said it’s key to take time performing due diligence on managers, including sitting down face-toface to really get to know them and ensure they are “true partners.”

“Moving away from the pitchbook and really focusing on their overall approach to investing, their philosophical approach, their culture — culture is really important in terms of their organization,” he said.

The system works with three consultants and has had these relationships for over a decade, Davis said. Verus serves as its general investment consultant, Cliffwater is the dedicated alternatives assets consultant and Townsend Group is the dedicated real estate consultant.

SCERS has an investment staff of ve, including Davis. Davis, who joined the system in 2010 after stints as a co-portfolio manager at Wedbush Morgan Securities and a senior research analyst at Concord Investment Counsel, said they’ve been “fortunate” to have “a lot of stability and longevity” and little turnover.

“One common characteristic of all the senior individuals on the team is they came from direct investment backgrounds. And they moved into the institutional allocator landscape,” he said. “So that’s been a really good combination for us — individuals who have put capital at risk investing directly in combining those skill sets with the skill sets to hire managers and allocate capital.”

And that team is investing on behalf of the people who make up the 30,000 retirement system membership.

“We have a mission that’s incredibly important to the livelihood of a lot of individuals that are part of the system,” Davis said, adding that they take the mission “very seriously.” 

Byron Pitts, left, Bob Adams and Cinda Whitten talk about the importance of DEI at the Nicsa 2024 Fearless Leadership Symposium.

Caryl Anne Francia

Washington

Does the crypto bill offer more clarity or more mayhem?

The answer depends on which side of the debate the person you ask is on

By COURTNEY DEGEN

Though sources say it’s unlikely to clear the Senate this year, the comprehensive crypto bill that passed the House in May still marks a major milestone — but whether that milestone is good or bad is up to interpretation.

While advocates of the legislation say it will bring regulatory clarity to the industry, opponents say it’s a veiled attempt at ensuring digital asset rms can get away with more mayhem.

“The (bill’s) strong bipartisan support … is an indication that lawmakers from both parties are nally starting to understand that digital assets are here to stay and that clear rules of the road are the right way to foster this innovation and safeguard investors,” said Ji Kim, chief legal and policy of cer at the Crypto Council for Innovation, in an email.

On the other side of the spectrum: “This bill, from our point of view, has major aws that could not only provide a more permissive environment for crypto rms to continue with some really problematic business activities, but actually has loopholes that could undermine broader protections for investors writ large,” said Mark Hays, senior policy analyst at Americans for Financial Reform and

Private

CONTINUED FROM PAGE 1

information disclosure that investors receive in public markets, investor groups noted.

But the private funds industry groups that challenged the rule are thrilled. The court’s decision is the latest in some high-pro le legal setbacks the SEC has dealt with in recent months, including the same court in December tossing out a rule that required companies to provide timelier disclosures on stock buybacks, and the SEC in April electing to halt implementation of its public company climate disclosure rule while a different federal court considers multiple legal challenges on a consolidated basis.

In September, six industry groups — the National Association of Private Fund Managers, Alternative Investment Management Association, American Investment Council, Loan Syndications and Trading Association, Managed Funds Association and National Venture Capital Association — led a lawsuit in the 5th U.S. Circuit Court of Appeals in New Orleans challenging the SEC’s private fund adviser rule.

The rule, nalized in August, required private fund advisers to supply investors with quarterly statements, including information about fees, expenses and performance; obtain an annual audit for each fund they manage; and acquire a fairness opinion in connection with an adviser-led secondary transaction.

Three-pronged argument

The industry groups argued that

Demand Progress.

The House passed the Financial Innovation and Technology for the 21st Century Act, or FIT 21, on May 22 in a 279-136 vote, with nearly all Republicans and 71 Democrats voting yes.

The legislation would give new authority over the digital commodities market to the Commodity Futures Trading Commission, while also designating the Securities and Exchange Commission as the regulator for the digital securities market. It also calls on both agencies to create joint rule-makings on the issue and would allow digital asset intermediaries to dually register with the CFTC and SEC.

Rep. French Hill, R-Ark., who chairs the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion, sponsored the bill with fellow committee member and House Majority Whip Tom Emmer, R-Minn.; House Agriculture Committee Chair Glenn “GT” Thompson, R-Pa., and Rep. Dusty Johnson, R-S.D., chair of House Agriculture’s subcommittee on digital assets.

Is it needed?

Though the bill’s supporters say it’s needed to ll a regulatory gap, “I think many people would agree, including people in the administration who’ve identi ed this gap, that regulators already have many existing powers to regulate crypto across the board,” Hays said.

He noted that the Treasury De-

the rule unlawfully restricted the long-standing, widely used business arrangements of private funds and their investors and exceeded the SEC’s statutory authority. They also said the agency failed to provide the public a meaningful opportunity to comment on the nal rule and that it did not perform an adequate cost-bene t analysis. Moreover, they said, the rule was arbitrary, capricious and otherwise unlawful.

On June 5, a three-judge panel at the 5th Circuit sided with the plaintiffs and ruled that the SEC exceeded its statutory authority in adopting the rule.

Speci cally, the judges dismissed the SEC’s argument that Congress granted the agency authority to promulgate such a rule in the DoddFrank Wall Street Reform and Consumer Protection Act.

The judges wrote that the SEC could not rely on Section 913 of the Dodd-Frank Act nor Section 211(h) of the Investment Advisers Act of 1940 to regulate private funds because those sections are limited to “retail customers.” Section 913, the judges held, “has nothing to do with private funds.”

It also called the rule’s anti-fraud measures under Section 206(4) of the Advisers Act “pretextual” and said the SEC did not articulate a “rational connection” between fraud and any part of the rule it adopted.

“In rejecting the SEC’s unfounded legal theory, the court has sent Washington regulators a strong message that they cannot bypass Congress when pushing their extreme agenda,” said Drew Maloney, president and CEO at the American Investment Council, a private equity trade group, in a statement touting

partment, SEC and Consumer Financial Protection Bureau all have existing authority over digital assets, but the bill “really takes a sledgehammer to the entire framework.”

The “biggest problem” with the bill, according to Hays, is that it “seeks to do an end run around the Howey Test.”

The Howey Test, named after the landmark Supreme Court case SEC vs. W.J. Howey Co., is what the SEC uses for determining which transactions qualify as “investment contracts,” therefore subjecting them to securities laws.  The test has four criteria that an asset must meet to qualify: a monetary investment, a common enterprise, a reasonable expectation of pro t, and a reliance on the efforts of others for success.

SEC Chair Gary Gensler has repeatedly referred to the Howey Test when asserting that the majority of digital assets are securities.

However, the House bill states that “a digital asset offered or sold or intended to be offered or sold pursuant to an investment contract is not and does not become a security as a result of being sold or otherwise transferred pursuant to that investment contract.”

Hays interpreted that provision to mean the bill is saying “anything that is a digital asset in an investment contract will always be a commodity,” which could lead “non-crypto actors to either A: seek to turn their assets into the same thing to evade that same scrutiny or (B: invite) other regulated security entities to chal-

MARKETING 101:

Alter Domus’ Jessica Mead thinks managers may see investors’ desire for more information as a way to differentiate themselves.

lenge the SEC’s jurisdiction over their assets as well.”

Rep. Maxine Waters, D-Calif., the top Democrat on the House Financial Services Committee, also had concerns about the provision, as she said “the bill doesn’t provide an alternative legal framework for these assets,” on the House oor May 22.

“A bill meant to regulate a very small part of the securities market or nancial markets — crypto — could upend 90 years of securities regulations instead,” Hays said. “And that could hurt investors and pension funds even if they decide to never touch crypto in their investments.”

Institutional investors have been given more opportunities to invest in crypto recently, as the SEC on May 23 approved eight applications to list and trade shares of spot ether exchange-traded products, following a January approval of 11 applications for spot bitcoin ETFs.

However, “just because there’s been some regulatory legitimacy given to these products does not mean that the underlying risks are not present,” Hays warned.

Debate in Washington Congress, the White House, and federal agencies have been debating how best to regulate digital assets for nearly two years now, though opinions differ.

While CFTC Chair Rostin Behnam has supported the development of digital asset legislation, SEC’s Gensler has repeatedly said no new legislation is needed and that the

the ruling as a victory for businesses across America.

Following the June 5 decision, an SEC spokesperson said in an email that, “We’re reviewing the decision and will determine next steps as appropriate.”

The agency has the option to appeal the case before the entire 5th Circuit or le a petition for certiorari seeking review before the U.S. Supreme Court.

Burdens avoided Jason Mulvihill, founder and president of policy advisory rm Capitol Asset Strategies and former chief operating of cer and general counsel at the American Investment Council, said the rule was extreme, unnecessary and ultimately would’ve cost limited partners and general partners a lot of time and money.

“I’m glad that the court recognized the SEC lacked statutory authority to pursue this rule,” Mulvihill

crypto industry simply chooses to be noncompliant with existing law.

Prior to the House vote on FIT 21, Gensler issued a statement expressing his strong disapproval of the bill. Speci cally, he said the bill “would create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk.”

His statement also said the bill’s “regulatory structure abandons” the Howey Test, which would result in weaker investor protections.

Dario de Martino, a partner at law rm A&O Shearman and co-chair of its global ntech and blockchain practice, said that despite Gensler’s statement, “I think there’s a desire to go ahead and nally have a comprehensive legal framework for digital assets in the United States.”

The White House put out a statement of its own May 22, in which it said FIT 21 “in its current form lacks suf cient protections for consumers and investors who engage in certain digital asset transactions.” However, the statement did not threaten a presidential veto. and expressed optimism about future legislation.

“The administration looks forward to continued collaboration with Congress on developing legislation for digital assets that includes adequate guardrails for consumers and investors while creating the conditions needed for innovation, and further time will be needed for such collaboration,” the statement said.

The White House statement

we can give you this level of information that you’ve been asking for,’” she added.

Institutions dismayed

Jennifer Choi, CEO at ILPA, one of the groups that supported the SEC rule in a court ling, said in a statement that following the decision: “Private funds will be under no obligation to provide critical information related to the fees and expenses charged to fund investors and meaningful performance information, leaving LPs to negotiate for terms that should be commonsense.”

said.

The level of detail private funds would  have been required to disclose under the rule was burdensome, according to Jessica Mead, regional executive for North America at Alter Domus, a fund administrator with over $770 billion private equity assets under administration.

Nevertheless, Alter Domus and its private fund clients are continuing their work on bolstering transparency, Mead said, though now without an SEC compliance deadline looming. The rule had rolling compliance dates depending on the asset size of the fund adviser, with the rst such date slated for Sept. 14.

The reason? Mead said investors want more information from private funds.”I wouldn’t be surprised if investors start to demand more granular information from their fund managers and you never know, it may be a way for fund managers to attract investors as well, to say, ‘Hey,

Benjamin Schiffrin, director of securities policy for Better Markets, a non-pro t investor advocacy group, who previously worked at SEC as an associate general counsel, said the court’s decision will hurt investors.

“We think that providing investors in private funds with the transparency that the rule would’ve provided is really important, and we’re very dismayed that the 5th Circuit is now not going to allow investors to receive those important disclosures,” he said.

Schiffrin said the private funds industry strategically led the case in 5th Circuit, given the court’s conservative track record. Twelve of the court’s 17 judges were appointed by Republican presidents, including the three that made the June 5 decision.

“In the current environment with a conservative Supreme Court and given that the 5th Circuit is always very skeptical of federal agency authority, I think you were sort of expecting that outcome, which is why the litigation was designed to be delivered there,” said Chris Hayes, managing partner at Capitol Asset Strategies and former senior policy

shows the administration is “committed to working with Congress to develop a nal legislative product throughout the rest of this Congress and probably into the next,” according to Kevin R. Edgar, a partner at law rm Baker & Hostetler and former chief counsel of the House Financial Services Committee.

The Senate is unlikely to pass FIT 21 this year given its schedule, as Congress has off nearly all of August and October, Edgar added.

Regardless, FIT 21 can serve as a launch point for future legislation, Edgar said, and de Martino agreed.

Even though…it’s probably not going to pass, I think (the bill is) still a signi cant milestone and it establishes an important foundation on which future legislative efforts will continue to build on,” de Martino said.

Election implications

According to Hays, the vote on FIT 21 “had to do more with crypto political spending than it did with actually the substance of the policy.”

“The industry has amassed a very large war chest and is not shy about communicating its intent to shape electoral outcomes based on whether or not policymakers are willing to play ball with their proposals,” Hays added.

In a June 3 blog post, Coinbase CEO Brian Armstrong said the company has donated an additional $25 million to Fairshake, a super PAC which the company and others in the industry are funding “to help elect pro-crypto candidates.” Fairshake and its af liates have now raised $160 million this election cycle. 

Brian Croce contributed to this story.

counsel with ILPA.

Another court could look at the same rule and legislative text and reach a different conclusion, Hayes added.

Now, it’s unlikely there will be government action anytime soon addressing limited partner challenges in fund agreements, according to Hayes, unless there’s a nancial crisis in the coming years that leads to another major legislative package like Dodd-Frank.

But Alter Domus’ Mead thinks the SEC at some point may issue a similar rule-making that’s less expansive and more narrowly tailored.

While the option for an appeal is still on the table, Mulvihill doesn’t expect the SEC to challenge the June 5 decision.

“Both the full 5th Circuit and the Supreme Court would be as skeptical as the three-judge panel was of the tenuous authority that the SEC claimed it had to write this rule,” he said. “If the SEC appeals and loses again it would simply raise the prole of the case and put another exclamation point on what the SEC already cannot do.” 

Fidelity

CONTINUED FROM PAGE 2

situations, liquid, structured credit and real asset strategies, for $4.2 billion.

Fidelity likewise seriously looked at buying rather than building but ultimately decided the best way forward was to build on “adjacencies” or existing investment strengths, said Chris Pariseault, the rm’s head of institutional portfolio managers. The close to $100 billion business in high income segments such as high-yield bonds, leveraged loans, distressed debt and CLOs that Lank oversees made direct lending a great t for Fidelity’s next foray into alternatives, Pariseault said.

David Gaito, a private credit veteran Fidelity hired away from PNC Bank three years ago to build a team as head of direct lending, echoed that conviction.

With about 25 hand-picked investment professionals now, Fidelity’s team has “everything we need today to be successful,” Gaito said. “We’ve raised more than $2 billion of equity capital. We have over $5 billion of buying power when you include the leverage ability of that equity (and) we’re excited about that,” he said.

And in some ways, the performance of the business has exceeded expectations, Gaito said. For example, Fidelity’s team has led the majority of the nearly 60 loan investments it’s made, which only three years in, “is a testament to the brand and the team,” he said.

‘Late to the game’

Fidelity executives concede their direct lending business may still look like the fabled tortoise in the race with the hare but, in line with that story, a tortoise they insist can be a winner.

“We were late to the game … relative to some of our competitors in the alternative space” and Fidelity’s direct lending business may not have as many assets now as “we would if we had acquired someone,” Lank said. But “the leadership of Fidelity was willing to make that sacri ce … to make sure that the foundation we were building was absolutely rock solid,” he said.

“We’re very, very pleased with the early success that we’ve had (and) over time we think we’re going to continue to be even more successful,” Lank said.

Still, at a moment when the number of asset owners forging ties with direct lending managers is proliferating — Pensions & Investments’ 2023 annual survey of more than 400 of the world’s biggest asset managers showed direct lending AUM climbing 11.8% to $42 billion for U.S. institutional tax-exempt investors — it’s an open question whether taking the slow road could impose considerable opportunity costs should, for exam-

ple, Fidelity get to the dance just as everyone has found their partners.

“Time will tell,” said Gaito but “we’re willing to bet that our strategy is the right one.”

Some industry analysts agree, contending that rms with considerable scale and brand power — like Fidelity — should enjoy the luxury of taking a deliberate approach to building their alternatives businesses.

Many rms expanding into private credit come with strong, enduring client relationships — not built on private credit capabilities — and are always going to be able to talk with those clients about a new offering, said Kevin Gallagher, a principal with Deloitte asset management strategic adviser Casey Quirk.

Those large money managers will have the luxury of “incubating a business slowly over time, if they wish to,” making opportunistic investments and watching how things play out, Gallagher said.

Meanwhile, Lank said future extensions of Fidelity’s alternatives ambitions will depend, as always, on what clients want and need — effectively leaving the door open for the manager to branch out into other segments such as infrastructure.

While there’s no guarantee the rm will move in that direction, “I think it’s safe to assume that we’ll be exploring large, growing categories like infrastructure where investors seem

Looting

CONTINUED FROM PAGE 2

Of note, Markey in April released a discussion draft for his bill, the Health over Wealth Act. Among that bill’s provisions, it would require healthcare entities owned by private

to have particular interest,” he said.

Private equity effort

Meanwhile, Fidelity’s longest standing foray into private markets doesn’t even gure into the rm’s alternative AUM totals.

Karin Fronczke, Fidelity Investments’ global head of private equity for the past four years, said the focus on adding modest private company exposures — including prelisting exposures to companies such as Meta, Spotify and Uber — to Fidelity mutual funds over the past 15 years has provided a mix of direct and intangible bene ts for investors.

Fidelity funds generally have a 10% limit on illiquid exposures, less than the Securities and Exchange Commission’s 15% ceiling but still considerably above what funds, out of liquidity concerns, typically take on, Fronczke said.

Fidelity’s private equity team has been deploying about $3 billion a year on average through its mutual fund offerings into private companies over the last several years, with the company setting a high bar for the team’s operations: “Strategically, our goal is to be one of the best, if not the best, longest term, stickiest partners for companies as an investor,” and getting to know companies years before they list is a key to that goal, Fronczke said.

“Why not get to understand that

equity to report additional information, such as fees collected by the private equity rm; dividends paid by the healthcare entity to the private equity fund; lobbying or political spending by the private equity fund and healthcare entity; and staf ng information at the healthcare entity.

Separately, federal regulators —

business and the management team a couple of years before they go public?” she asked.

While returns from those exposures may be attractive, the bigger bene t, Fronczke said, may be in giving Fidelity’s army of portfolio managers and analysts a fuller understanding of the up-and-coming private companies capable of disrupting the listed companies they invest in.

“Each and every day there are new private companies being founded, seeded and growing, that will disrupt those public companies … we need to understand who is going to disrupt the companies in the public space,” she said.

“And where we have conviction in the business” — with a large addressable market, a competitive moat and a great management team — “we will choose to invest as well,” she said.

That approach has become all the more valuable as more and more companies stay private longer and account for an ever-larger share of the investable universe. When the term “unicorn” was coined just over a decade ago, an unlisted rm with a value of $1 billion or more was seen as a rarity, but today there are 1,500 unicorns with a combined value of $5 trillion, Fronczke noted.

Fronczke’s 10 member team is spread out across venture capital centers around the globe: Boston, Silicon Valley, London and Hong Kong. Many of those professionals came from traditional venture capital and private equity rms, she noted. Fidelity’s leadership had the foresight to work to “make sure that we were a top player in private investing.”

Asked whether Fidelity’s efforts in private companies could expand beyond adding limited exposures to the rm’s huge mutual fund business, a spokeswoman said that is a question for another day.

Meanwhile, Fronczke said her team works closely with Fidelity’s industry-leading public analyst team. “We conduct 500 private company meetings per year (and) there’s a public research analyst on almost every single one of those meetings with us.”

“Not only do they lend their insights to our diligence process but importantly they get to know and understand and appreciate who the up-and-coming private disruptors are that might impact their public coverage,” Fronczke said. Those 200 analysts are “our key secret sauce,” she said. 

the Federal Trade Commission, the Justice Department and the Department of Health and Human Services — are examining acquisitions by private equity companies in the healthcare sector. The regulators issued a request for information in March to obtain public feedback on the matter, and the comment period closed June 5. 

KEEPING IT REAL: Fidelity’s Karin Fronczke said the rm’s focus on adding private company exposures to its mutual funds has bene ted investors.

Suzanne Kreiter/The Boston Globe

Geopolitical concerns top of mind for San Luis Obispo exec

Katie Girardi is keeping close watch on potential ‘doomsday’ impacts

By PALASH GHOSH

Less than six months into the job as the executive director of a pension fund, Katie Girardi’s days are a mix of “big picture planning” and “hands-on management.” Girardi, who commenced her tenure at the $1.7 billion San Luis Obispo County (Calif.) Pension Trust on Jan. 1, said so far geopolitical issues have stood out as her biggest concern.

“The global instability is what keeps me up at night when it comes to identifying and managing investment risks for the portfolio,” she said. “Our consultant, Verus, was fantastic in collaborating on the creation of our current portfolio allocation, but if there’s a nuclear war, (incidents of massive) cyber-warfare, (a proliferation) of humanitarian crises, etc. where will that put us?”

Ongoing macroeconomic issues such as in ation and high interest rates will have more impact on portfolios, although she fears that potential geopolitical issues could impart a much broader “doomsday impact” on portfolios.

Doomsday events, Girardi explained, are unpredictable and planning with that type of precision is nearly impossible. “Our long-term strategy does not include making reactive changes to short-term events,” she added. “You can buy all the insurance you want, but that tornado doesn’t care.”

Regarding her duties as executive director, Girardi stated that “big picture planning includes reviewing and implementing current policies that will sustain us into the in nite future, building and maintaining re-

lationships with all stakeholders, and researching innovative solutions for issues most pensions will face.” Hands-on management, she added, “includes removing obstacles, listening to ideas, and keeping staff engaged in their work.”

The executive director functions as a chief investment of cer in the “big picture planning” aspect of her role. “The CIO reviews and implements funding policies, maintains relationships with investment managers, and continuously analyzes the market to support the investment decisions that were made to solve a few of those pension issues,” she noted.

“Not having a CIO mindset in the executive director position is like going out for a round of golf with only your driver — at some point, you’ll need the trusty putter.”

Girardi said since the beginning of her tenure at the pension fund she is in charge of any signi cant changes to its asset allocation, although no changes have yet been made. However, under the pension plan’s revised ‘Functionally Focused Portfolio’ strategy, each year the board of trustees will adopt an interim asset allocation target to achieve the longterm asset allocation target policy.

Girardi explained that the ‘Functionally Focused Portfolio’ — or FFP — is a “model used to create our strategic asset allocation through three primary sub-portfolios: Liquidity, Growth, and Risk Diversifying.”

This model, she noted, simpli es the pension fund’s mission of adequately paying bene ts by ensuring assets are available in the liquidity sub-portfolio, allowing the growth sub-portfolio to invest in long-term assets with lessened constraints on liquidity.

“The risk-diversifying sub-portfolio is used to offset declines in value in the growth sub-portfolio, as

mand, improve market functioning, ensure fair and equitable treatment of all participants and instill needed market con dence.”

buy and sell these credits as a commodity, explained Shai Kalansky, a partner at Morrison & Foerster who works with clients who trade carbon credits.

Carbon credits are generated through projects that reduce, avoid, or sequester emissions, like renewable energy projects, forest conservation or other sustainability initiatives, according to a post on the International Carbon Registry’s website.

The markets are expected to grow in the coming years.

“While VCMs remain relatively small today, they have the potential to grow in the coming years and channel a signi cant amount of private capital to support the energy transition and combat climate change, with the right incentives and guardrails in place,” the policy statement said. “At the same time, we believe fully achieving the potential of these markets requires further action to address challenges that have emerged, promote robust standards for carbon credit supply and de-

well as provide liquidity,” she added. “Our strategic asset allocation for the liquidity, growth, and risk diversifying sub-portfolios is 10%, 75%, and 15%, respectively.”

Moreover, since the new strategic asset allocation will not be achieved overnight to support the FFP model, “we review and adopt an interim asset allocation target each year based on the commitment pacing plans provided by our private managers.”

The 2024 interim strategic asset allocation for liquidity, growth, and risk diversifying is 8%, 77%, and 15% respectively, she added.

As of April 30, the pension fund’s largest allocations were domestic equity (19.5%), international equity (14.8%), private equity (13.7%) and private credit (10.4%). While Girardi does not expect to change the allocations to private equity or private credit this year, by 2026, these allocations are expected to climb to 18% and 12%, under the pension fund’s long-term strategic plan.

Private credit, private equity

Girardi acknowledges that private credit has become a popular asset class among many institutions.

“I don’t think I’ve listened to a webinar in the past nine months that hasn’t discussed private credit in some shape or form,” she said. “Normally, I don’t jump on the ‘hot topic’ bandwagon, but I think (private credit is) a great diversi cation tool for the long-term portfolio. Also, if you have a skilled manager looking for those inef ciencies, the potential to capitalize on mispriced assets could be extremely bene cial.”

Another attractive trait of private credit is its combined effect with private equity, she said. “Those private equity rms are using private credit to nance their portfolio companies, therefore potentially providing higher returns for both asset class-

WORTH A LOOK: Normally disinclined to pursue the hot investment, San Luis Obispo County (Calif.) Pension Trust’s Katie Girardi thinks private credit is ‘a great diversification tool for the long-term portfolio.’

es,” she added.

As for xed income, under the functionally focused portfolio, the pension fund seeks to reduce its core bond allocation to zero by 2026 from below 0.8% as of April 30. These proceeds will be deployed to increase the fund’s government bond and Treasury in ation-protected securities allocation to 8% and 7%, respectively, she stated.

“Currently, we have a 4% allocation to bank loans, which will be reduced to 0% in our long-term allocation,” she added.

The xed-income cuts are based on the needs of the plan. In 2020 when the shift was made to a functionally focused portfolio, three buckets were created: liquidity, growth and risk-diversifying, Girardi explained.

These buckets were tailored to meet the speci c functional objections such as diversi cation and achieving a higher Sharpe ratio than a traditional 60/40 asset allocation.

“Liquidity is at the center of our

process to pay bene ts and the remainder of the portfolio builds in growth and diversi cation once that function has been satis ed,” she said. “By eliminating our core xed-income allocation, but keeping liquidity at required levels, it allows the plan to move into additional growth exposures such as infrastructure.”

Girardi noted that the decline in the core bond exposure has “been a gradual redemption process.”

Prior to the approval of the FFP model, the pension fund’s strategic asset allocation SAA had a 20% allocation to domestic xed income and a 10% allocation to global xed income.

”Both allocations have been reduced to zero,” she added. “While the majority of the proceeds were deployed to support the TIPS and Treasuries allocations, 7% and 8%, respectively, all redemption proceeds are captured in a cash investment account and then dispersed as needed for capital calls or rebalancing

According to Bloomberg, VCMs are worth approximately $2 billion today and could grow to over $1.1 trillion annually by 2050.

The administration statement was issued by Treasury Secretary Janet Yellen, Agriculture Secretary Tom Vilsack, Energy Secretary Jennifer Granholm, Senior Adviser for International Climate Policy John Podesta, National Economic Adviser Lael Brainard and National Climate Adviser Ali Zaidi.

Stricter guardrails

The administration statement listed seven principles for responsible participation in VCMs that Michael R. Littenberg, a partner at law rm Ropes & Gray, described as “evolutionary, rather than revolutionary” because they do not re ect a change in law — the markets are still unregulated — and in many respects are aligned with private ini-

ONE STEP: Ropes & Gray’s Michael R. Littenberg called the new principles evolutionary rather than revolutionary.

tiatives and other market developments and practices.

The principles, which sources said are aimed at boosting transparency and accountability in VCMs, include:

■ Carbon credits and the activities that generate them should meet credible atmospheric integrity standards and represent real decarbonization.

■ Corporate buyers that use credits should prioritize measurable emissions reductions within their own value chains.

■ Credit users should publicly disclose the nature of purchased and retired credits.

“I think anything that we see that results in more transparent markets

in this area, more regularity in terms of disclosures is only a good thing for the continuing growth of the voluntary carbon market,” Littenberg said.

Having stricter guardrails in place “will make the voluntary carbon markets more attractive,” he added. “Because if they’re not perceived as the Wild West or credits are not perceived as junk credits … I think that’s all good to create purchaser interest and create volume for these markets over time.”

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Frampton. “We arrived at (19%) a couple of years prior to when we planned, and then we actually overshot it a little bit. When the stock market went down in 2022, everyone had the denominator effect on their funds.”

Frampton said the allocation to private equity peaked at 20.5%, and now that actual allocation is down to 18.5%, the result of lowering the amount of commitments the last two years.

“I just really think it was the right decision (to lower the target),” said Frampton. “I think we avoided putting money out into a really euphoric market.”

When Frampton said he and his investment staff recommended lowering the target to 15% in 2021, it was due to what he saw as a very undisciplined market.

“Some of the top venture funds were in FTX (Trading Ltd.), including some of our managers,” he said.

“The company didn’t even have a board of directors, and it was a fraud. And the top venture funds did that deal.”

Frampton also said that leveraged

buyout multiples were at “stunningly high” levels in the mid-teens.

“When I started my career (in the early 2000s), LBO multiples were in the single high digits,” he said. “So, I was like ‘I don’t like the setup here.’ This was 18 months ago. Let’s lower the target to 15% we’ll just keep on this billion-ayear pace.”

Venture in a reset

He said it’s debatable whether he and his staff found the oor in private equity and venture capital, since it is still not known when the Federal Reserve may start cutting interest rates, which could hamper

For now, Girardi serves as the sole investment staff in league with the investment consultant.

“Ultimately, our board of trustees receives the recommendation from myself and Verus to determine the portfolio decisions that are guided by the investment policy,” she said. “We require all trustees to complete a rigorous investment institute to familiarize themselves with asset classes, investment terms, risks, trending topics, etc. Continuing education is required on an annual basis, as well.”

While she got a couple of weeks of training with her predecessor, Carl A. Nelson, Verus “took the time to give me the historical information on how we got to where we are today.”

Women

CIOs

As one of the few female CIOs/ executive directors of pension funds, Girardi said while she “would love to see more women” in executive roles

Official action needed

Kalansky likened the administration statement to a white paper because the principles are not enforceable. He thinks of cial action is needed to codify the principles into law.

“These are good principles, they’re good guides, but absent implementing legislation or a demand in the market, they’re just guides right now,” Kalansky said. “If market participants start to require it based on this framework, that could expe-

‘It was the right decision (to lower the PE target). I think we avoided putting money out into a really euphoric market .’

ALASKA PERMANENT’S MARCUS FRAMPTON

the volume of dealmaking. However, he is encouraged.

at pension funds, it’s more important that “individuals are recognized and hired based on their skills, knowledge and dedication.”

Girardi, 37, noted that it took a lot of “hard work and thick skin” to get to where she is.

“I used to sign my emails ‘K. Girardi’ instead of ‘Katie Girardi’ because I found a quicker response or openness to discuss (things),” she recalled. “Some participants would turn and walk right out the door when they saw me sitting at the table for their appointment — so yes, I understand the challenges but I would be extremely disappointed if I received a position based solely on my sex and young age. I am encouraged by the progress we are making, but I think we must support and mentor all individuals, to give everyone the same chance to succeed based on their own merits.”

According to a report issued in July 2023 by Emerging Manager Monthly, only 13% of CIOs at public pension funds were women.

Since assuming her role as executive director, Girardi said she has focused on strengthening relationships with her staff, her employers, and her partners.

“While pensions may share similarities, each plan, including ours, has its unique complexities,” she said. “Our plan document might as well be my desktop screensaver for the number of times I access it daily.”

New to California, Girardi formerly spent eight years as the retirement plan administrator at the $1 billion Oklahoma Municipal Retirement Fund, Oklahoma City.

“Familiarizing myself with California laws on PEPRA (the California Public Employees’ Pension Reform Act) and community property has been an ongoing adventure,” she noted. “Our general counsel is now my go-to person.”

The responsibility for the success of the pension fund falls on her and her staff, she observed, and it is something she does not take lightly.

“It’s been dif cult to learn to turn off the computer at a reasonable hour,” she added. “(But) I believe having the California sunshine and weather has helped with that transition.” 

dite and improve the quality of carbon credits.”

Littenberg had a different thought and said there’s a danger of overregulating VCMs. However, he added that the future of voluntary carbon markets could change drastically depending on who’s in the White House come 2025.

“A policy endorsed by the Biden administration isn’t necessarily going to be a policy endorsed by Trump or any other new administration,” Littenberg said. 

ni cant part of what we do, and it’s showing up in valuations, but it’s also showing up in deal terms, like (requiring) a board of directors and companies you invest in and things like that.”

Frampton did say private equity hurt performance a bit in 2023. Because the sovereign wealth fund was overweight the target for private equity, which had at returns for the year, they needed to offset that by being underweight public equities, which had returns well into double digits.

Mercer

CONTINUED FROM PAGE 1

acquire Vanguard Group’s $60 billion OCIO business, Vanguard Institutional Advisory Services.

Another focus is a commitment to and growth in Mercer’s de ned contribution business. The consultant already runs the Mercer DC Master Trust, which has “been very successful in its particular channel in terms of that probably larger, more complicated, complex client” segment, Parkinson said. The rm operates master trusts in North America, Ireland, the Middle East and in the huge superannuation market in Australia — where it transferred BT Super into its own Mercer Super Trust last year. The BT Super transfer — which created an about A$63 billion ($41.5 billion) super fund with BT accounting for just over half of that — was part of a deal for Mercer to merge Westpac Banking Corp.’s BT personal and corporate superannuation business into its own.

“We were looking to try and invest in those strategic aims, and Cardano is a fantastic match in that area,” Parkinson said.

Cardano’s three units

These strategic focuses align with what Cardano brings to the table, which covers three business units: an investment solutions business that straddles the U.K. and the Netherlands, with $66 billion in AUM; an advisory unit that covers corporate nance, litigation support, risk transfer and employer covenants; and NOW: Pensions, a U.K. master trust with about £4.6 billion ($5.8 billion) in assets.

“Each of those, we think, brings fantastic talent and capability, and extends what Mercer is able to deliver,” Parkinson said, with the solutions unit bringing implementation, and an enhanced environmental, social and governance advisory capability, for example.

“We expect this to be a transaction — if and when we pass our regulatory hurdles — to be about growth, delivering more choice and delivering more value to clients,” Parkinson said.

For Cardano, becoming part of a consulting behemoth like Mercer has its own attractive rationale, said Kerrin Rosenberg, U.K. CEO, in a separate interview. And having been approached by many suitors over the years, senior leaders were razor-focused on any deal ticking its own boxes.

The rm had been approached multiple times over the last couple of decades, and those conversations “just didn’t go anywhere because we weren’t ready,” Rosenberg said. But in recent years, the management board had been thinking about the future — how Cardano had reached a point where “we are increasingly, I think, competing with very large competitors in all of our business areas and wherever we are.”

Each of the three parts of Cardano — advisory, investments and NOW — has been successful in its own right, but senior leaders were thinking carefully about how to keep offering opportunities to staff and remaining competitive.

“I think as Cardano, we’ve done a very good job of doing what we do and growing that over time — but just the markets that we operate in have become more competitive,” Rosenberg said. While continuing as a relatively niche specialist “has got some attractions … being part of a top, world-class multinational company that (is) broadly diversi ed … is another” thing entirely.

For the NOW: Pensions unit,  which is narrowly focused on automatic enrollment, Rosenberg said the next logical step was to broaden the offering and think about other single-employer trusts the team might be able to work with. Sitting alongside Mercer’s master trust and DC offering can help with that next step.

Being part of a bigger organization will also be attractive for staff, potentially enhancing retention as bigger opportunities for “talented colleagues” open up. “Whichever way you look at this, whether it’s the advisory piece, whether it’s the … investment piece; being part of a larger family, a broader organization that has that brand, that has a broader client base … (brings) incredible opportunities that would be very, very hard for us to create for ourselves,” Rosenberg added.

The deal is “almost like unlocking the next level in a computer game. So you’ve achieved a certain level, they (Mercer) unlock a whole bunch of new levels. And I think that’s exactly how we’re thinking about it,” Rosenberg said.

a global perspective, we anticipate sustained M&A activity in this sector,” he said.

Regarding Mercer and Cardano, there are speci c elements to consider, Bruyere said. The rst is that OCIO in the U.K. is facing “the significant headwind of a declined DB pension pool that is increasingly” choosing insurance deals to transfer risk, and to de ned contribution arrangements — most notably master trusts. On that front, Mercer and Cardano’s positions in the U.K. DC master trust market “is a clear additional bene t of the combination,” Bruyere added.

Little overlap

Although Mercer and Cardano run investment management, advisory and DC units, they are different, and “we operate in very different channels at the moment — there’s almost zero overlap,” Parkinson said. “We’re committed to meeting clients at where they’re at, and helping them on their journey across the spectrum. And in my mind, what the combination does is effectively just broaden that spectrum out,” Parkinson said. Speci c implementation or liability-driven investment needs of a client can now be better covered through the combination, while Cardano’s existing clients will bene t from the larger manager research function at Mercer and alternative investment advice.

For now, the focus for Parkinson and Rosenberg and their teams is to serve clients, providing continuity.

“Venture is going through a huge reset,” said Frampton. “That’s a sig-

Still, he said, “the fund is unequivocally in a better place because we moderated pacing back in 2021.” 

It led senior leaders to think through how best to position the business for future growth, and toward the end of last year, the team embarked on an of cial process, engaging external help. “We had to think very carefully about how do we get to a solution that is growth-oriented, that is good for our clients, good for (our) people and works for shareholders, too. So we had to tick all the boxes. The management board has spent a lot of time being thoughtful about that,” Rosenberg said.

Targeting growth in OCIO business in particular is part of a wider trend in the money management industry. “OCIO remains an attractive business line for various types of players: asset managers aiming to become a ‘one-stop-shop’ and create stronger relationships with their clients, and investment consultants looking to diversify from their traditional model toward fee-based assets under management,” said Richard Bruyere, managing partner and co-founder at money management strategy consultant Inde .  Those rms where there are “strategic synergies” between OCIO and their current business are the most likely to pursue inorganic growth in the service, “as the ability to cross-sell other products and services will help compensate for OCIO’s relatively low margins. From

As for the talent Cardano is known for, the deal presents an opportunity for executives to enhance their careers in ways they may not have been able to, Rosenberg said. Many high-pro le executives have worked at Cardano over the years — Rosenberg himself is particularly well-known in the industry, and has also given evidence to the U.K. government’s Work and Pensions Committee as part of its investigation into the 2022 liability-driven investment-related liquidity crunch and gilts market crisis, sparked by a socalled mini budget.

“I’m happy to be on-record for this: I personally … expect this to be the third of three jobs for me,” Rosenberg said. Before Cardano he spent 15 years at Hewitt Associates, now part of Aon. He’s spent 17 years running Cardano in the U.K., and hopes “to spend the next 15-plus years at Mercer. We’re all committed, and … not just to see the integration through, but really to be part of a family and continue to thrive,” Rosenberg said.  purposes.”

OVERNIGHT GROWTH: Cardano’s Kerrin Rosenberg said being a part of Mercer will help it compete against larger rms and could provide more opportunities for staff.