Asset Managers Eye Portfolio Specialists

Hiring portfolio specialists is a growing trend within the asset management industry.

As investment products become more complex, demand for distribution support increases, according to Pamela DeBolt, senior analyst at Cerulli. “This is putting a lot of pressure on product managers to get everything done,” DeBolt said. Half of asset managers will hire a portfolio specialist within the next 12 months, Cerulli predicts.

The November issue of the U.S. Asset Management Edition of The Cerulli Edge reviews the challenges asset managers face in structuring their product management organizations.

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Staffing levels may never return to pre-2008 levels, Cerulli observed, which is driving the need for firms to get creative with personnel and forcing them to examine their overall structure.

Portfolio specialists are generally tasked with providing product expertise to help fill the gap in product coverage. They typically reside outside the product group and often report into investment management.

“Advisers expect a broader range of support from their wholesalers, which is putting more emphasis on the importance of portfolio specialists,” DeBolt said, pointing out that many specialists travel with wholesalers to meetings in order to provide additional resources and product expertise.

Asset managers often struggle with how to best organize their product groups within their organizations, Cerulli’s research found. Some firms believe product development and product management belong together because they are related. Others believe they should be separate because the roles require different skill sets. Cerulli believes that marketing should be housed under the same organizational umbrella as product to avoid inconsistent messaging.

“Firms that are in the process of increasing their headcount have used the opportunity to analyze the current structure of their product personnel and to make changes where necessary,” DeBolt noted. “Asset managers should assess their product organization structure and evaluate their product managers to see where efficiencies can be achieved. Allowing products managers time to analyze unique client needs will allow better support of distribution efforts.”

More information about The Cerulli Edge: U.S. Asset Management Edition, November 2012 is available here.

GAO Looks at Risk-Aligned PBGC Premiums

Moving to a more risk-based system would shift Pension Benefit Guaranty Corporation (PBGC) premium costs among sponsors.

A Government Accountability Office (GAO) report notes that PBGC’s current structure relies largely on a flat-rate premium that is based on the number of plan participants and that assesses rates equally per plan participant across all sponsors. PBGC also charges a variable-rate premium that is based on just one risk factor, plan underfunding.   

One available option is to further increase rates within this current structure; however, plan underfunding alone is a poor proxy for the risk of new claims, according to the GAO. An alternative option is to redesign premiums to incorporate additional risk factors, such as a sponsor’s financial strength (as currently being explored by PBGC) or a plan’s investment strategy, as is currently done in the U.K..  

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GAO suggests that Congress consider revising PBGC’s premium structure to better reflect the agency’s risk from individual plans and sponsors, and recommends that PBGC further develop its analyses of possible redesign options. 

To analyze the potential effects of different premium structures, PBGC developed a model using data from a sample of about 2,700 plans. Under one possible option explored by PBGC that incorporated an additional risk factor for a sponsor’s financial health, financially healthier sponsors would tend to pay less and financially riskier sponsors more—as much as $257 more per participant, depending on their assigned risk level.

(Cont’d…)

Some pension experts and plan sponsors GAO spoke with raised concerns about this potential redistribution of costs. For example, some believe that plan terminations would increase. However, earlier work from GAO and others indicates that other factors—including sponsor size, collective bargaining agreements, and overall plan cost—are more important in sponsors’ decisions to freeze their plans.   

Some pension experts and plan sponsors also noted that a more risk-based system could lead to premium increases during poor economic conditions when sponsors are least able to pay, and that it is inequitable for current sponsors to pay higher rates to address costs resulting from earlier plan terminations. However, experts also suggested ways to address such concerns within a redesigned premium structure, such as by capping premium levels and averaging sponsors' funding levels over multiple years to reduce volatility.  

The process of redesigning and implementing a more risk-based premium structure poses potential data and administrative challenges, the GAO conceded. To help address these challenges, PBGC’s model could be further developed to evaluate the implications of incorporating additional risk factors, such as company financial health and plan investment mix. Such efforts could include identifying any additional data needs, as well as exploring the effects on sponsors, including any potentially disproportional hardships on smaller companies resulting from redistributing higher rates to riskier sponsors based on a redesigned structure.   

Although PBGC is uniquely situated to take on additional rate-setting responsibilities, if Congress were to relinquish some authority in this area, certain safeguards still may be required to help mitigate concerns about PBGC’s governance, oversight and transparency. These safeguards could include additional congressional oversight, soliciting public feedback and establishing an appeals process for sponsors who wish to challenge their assessment.  

The full GAO report can be downloaded from http://www.gao.gov/products/GAO-13-58.

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