DC: The Next Frontier for Fiduciary Management

(November 26, 2013) — The future of fiduciary management lies within defined contribution (DC), according to investment consultants Psolve.

The Punter Southall Group arm believes that, while DC schemes have so far been neglected by the fiduciary management industry, it is now time for this to change.

Many investment consultants have boosted their fiduciary management resources for DC over the past year: Northern Trust added Eric Peterson to its outsourced CIO function to work across defined benefit, DC, and Taft Hartley plans in the US in February, and Mercer hired Liana Magner to the newly created role of US delegated DC leader in May.

The key problem is how the typical DC plan approaches its default fund, said Britt Hoffman, head of DC at Psolve.

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The typical approach has been to use a simple mixture of equities and bonds, shifting members automatically from equities into bonds and cash as retirement nears, but this—as she and many others have argued—is sub-optimal.

“In the early years there is a risk of a big paper loss, discouraging DC scheme members from making more contributions to their pension. In the later years, there is a risk of equities being sold for bonds at unfavourable prices,” Hoffman explained.

The biggest issue is the growing governance burden facing managers of DC funds, and it is here that fiduciary management will develop its market, according to Psolve.

FuturePlanner, the Finmeccanica group’s DC scheme, is one of Psolve’s clients that has taken advantage of its delegated DC service. Mike Nixon, head of pensions, said: “We were being told about clever new things for the DB schemes that did not cost much. Why should our DC members miss out?”

Hoffman said the key turning point was realising that it was possible to implement a DC strategy that is much more aligned with the strategies traditionally used in defined benefit funds.

“This is a big step forwards – particularly because the risk and return needs for DC and DB are really not that different,” she said.

The shift into focussing on DC comes at a time when outsourced CIO business of investment consultants is expected to grow to 18% of their total assets, according to research from Cerulli Associates.

Psolve rival Cardano also celebrated a birthday this month, and marked its fifth anniversary by publishing the fiduciary management results of its clients. The fiduciary manager’s clients outperformed their peers on a liability base by 30 percentage points.

There is scant data on the performance of fiduciary managers and other outsourced providers. Pick up the December European edition of aiCIO for a full investigation into inadequacies of the market.

(November 25, 2013) – The CFO and COO of the Canada Pension Plan Investment Board (CPPIB) have been named to another’s roles, according to CEO Mark Wiseman.

Benita Warmbold, currently COO, will be responsible for all finance functions at the C$193 billion fund in her new role as CFO.

She replaces—and will be replaced by—Nick Zelenczuk, who will take over all operations, technology, and planning functions. He joined CPPIB in 2009; Warmbold has been with the fund since 2008.

Both will still hold their titles as senior vice-presidents.

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“We are realigning responsibilities between the finance and operations functions,” Wiseman said in the announcement.

Additionally, he said the organization is “continuing to further strengthen leadership of our global operations,” and will be changing up two more senior management positions.

In addition to his role as president of CPPIB Asia, Mark Machin will assume the title of senior vice-president and head of international. Machin, who has only been with CPPIB since 2012, will be charged with coordinating all of its international investment activities and the management of its global advisory relationships.

Working under Machin will be Alain Carrier, the current managing director for Europe and global head of infrastructure private investments. He is moving up into the position of head of Europe, and his purview expanding to include the Middle East and Africa.

Carrier, according to the announcement, “will position CPPIB for the anticipated growth of our private and public investment programs in the these markets, cover all aspects of CPPIB’s mandate.”

In an October interview with aiCIO, Wiseman stressed the upmost importance of hiring the right people and preserving CPPIB's culture. "In terms of management, the biggest errors are people errors," he said. "As an organization that prides itself on culture, integrity, high performance, whenever we’ve compromised on this, it’s been a mistake that I’ve regretted."