April 2007
Issue Features
- Emerging Managers Gain Ground
- Portable Alpha: A Risk-Efficient Approach to LDI
- Currency as an Asset Class
- Exploring the Hedge Fund Universe
Column: Voices
Departments
Department: Global Megatrends
Today, and over the foreseeable future, a series of events — call them global megatrends — will have a profound impact on the world economy. Each issue of Point of View will share insight into these trends and how the institutional investment community is preparing to address them.
Outsourcing as a Solution to Plan Administration and Investment Challenges
A series of regulatory changes and economic challenges is prompting retirement plan sponsors to seek out new ways to effectively manage risk while working to meet future funding obligations. Plan sponsors are increasingly looking to outsourcing of the servicing and investment of plan assets as ways to gain simplicity in plan management while maintaining appropriate asset allocations to meet their future liabilities.
Challenges Facing Plan Sponsors in the Coming Years
When considering potential solutions, plan sponsors likely will have to go beyond traditional methods of plan management.
The landscape for retirement plan sponsors is continually evolving, and these institutional investors will need to remain focused on several key issues:
- Funding liabilities – Despite a better return environment during 2006, plan sponsors continue to face concerns over appropriate funding levels.
- Proposed financial accounting changes – Moving pension liabilities to the corporate balance sheet may materially affect an organization’s bottom line.
- Recent regulatory changes – Governments around the globe continue to establish new requirements and guidelines that can impact desired funding status and contribution levels.
- Increased corporate restructuring – Corporate actions such as M&A activity or divestiture can create new investment or administrative challenges for plan sponsors.
- Resource constraints – Organizations face staffing challenges within both the human resources and investment management functions.
- Hard and soft freezing of plans – Despite potential advantages to freezing plans, sponsors continue to face a significant expenditure of resources and expertise to manage the administration and investment management of plans.
As a result of these and other challenges, a different mindset on the part of plan sponsors is needed to manage and service these pools of assets.
Source: Northern Trust
Goals of Plan Sponsors
When seeking a partner to help manage plan assets, sponsors have developed a set of key goals to ensure that a vendor can service their particular needs.
What Do Sponsors Value?
When selecting a partner to help manage plan assets, sponsors place a high value on effective investment management processes and results.
Vendor Requirements
Plan sponsors who have made the outsourcing decision have a variety of requirements when selecting a partner to help manage assets or administration.
Perceived Benefits
Plan sponsors perceive a common set of benefits they hope to realize when outsourcing either the investment or administrative functions.
Savings — of both cost and time — appear at the top of most plan sponsors’ lists:
- Realizing cost savings (76%)
- More efficiency and time savings (71%)
Quality and ease of vendor services also represent highly desired benefits among the majority of respondents:
- Single point of contact (66%)
- Higher quality services (61%)
- Greater vendor accountability (61%)
Note: Based on a universe of 283 survey respondents
Source: Chatham Partners
© 2013 Northern Trust Corporation
northerntrust.com
Past performance is not necessarily a guide to the future. Index performance returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index. Index performance is based upon information provided by the index providers. There are risks involved with investing, including possible loss of principal. There is no guarantee that the investment objectives of any fund or strategy will be met. Risk controls and asset allocation models do not promise any level of performance or guarantee against loss of principal.
This material is directed to eligible counterparties and professional clients only and should not be relied upon by retail investors. For Asia Pacific markets, it is directed to institutional investors, expert investors and professional investors only and should not be relied upon by retail investors. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy or product described herein. This information is not intended as investment advice and does not take into account an investor’s individual circumstances. Opinions expressed herein are subject to change at any time without notice. Information has been obtained from sources believed to be reliable, but its accuracy and interpretation are not guaranteed.
Asset management at Northern Trust comprises Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., the investment adviser division of The Northern Trust Company and Northern Trust Company of Connecticut and its subsidiaries to offer investment products and services to personal and institutional markets. Northern Trust Global Investments Japan, K.K. is regulated by the Japan Financial Services Agency. The Northern Trust Company has a branch in China mainly regulated by the China Banking Regulatory Commission, People’s Bank of China and State Administration of Foreign Exchange. The Northern Trust Company of Hong Kong Limited is regulated by the Hong Kong Securities and Futures Commission. In Singapore, Northern Trust Global Investments Limited (NTGIL), Northern Trust Investment, Inc. and Northern Trust Company of Connecticut, Inc. are exempt from the requirement to hold a Financial Adviser’s Licence under the Financial Advisers Act and a Capital Markets Services Licence under the Securities and Futures Act with respect to the provision of financial services. In Australia, NTGIL is exempt from the requirement to hold an Australian Financial Services Licence under the Corporations Act 2001 in respect to the provision of financial services. NTGIL is regulated by the FSA under U.K. laws, which differ from Australian Laws.