Data & Research September 16, 2015

Employees Want Custom Benefits Communication

A disconnect between what workers want and what employers provide in tailored benefits communications.
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Workers on either end of the employment spectrum want custom communications that speak to their benefit concerns, a survey found.

Employees entering the workforce and those near retirement need tailored communications to optimize workplace benefits, according to a Guardian Life Insurance Company of America survey. Findings from the third annual Guardian Workplace Benefits Study highlight the personal and financial needs of employees at different stages of their careers, and how education and enrollment play a role in their decision-making.

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Those employees just starting their careers and those nearing retirement have distinct financial needs. Early entrants—those in the first five years of their working lives—want more choice and education delivered via the workplace. In contrast, near-retirees—within five years of retirement—value their benefits and worry about losing them in retirement. 

Early entrants expressed a strong desire for financial education and guidance about their benefits decisions to help them focus on immediate financial needs: paying bills, job security, work/life balance and reducing debt. Nearly two-thirds of these younger workers believe that buying insurance and saving for retirement through their employer is easier than doing it on their own, and 56% prefer learning about financial planning and products at work, compared with 44% of those near retirement. This group is looking to the workplace to help them develop healthy financial habits.

NEXT: Finances and adequate health insurance are concerns of near-retirees.

Near-retirees are most concerned about their finances and health in retirement: maintaining adequate health insurance, having a comfortable retirement, staying healthy and having sufficient savings. While 93% of respondents in this age group say it is important to have retirement savings that lasts as long as needed, only 62% state they have achieved this. This group craves more information to optimize benefit packages so they can meet their upcoming lifestyle changes.

“Benefit education and communications solutions can’t be one-size-fits-all, but must be clear, relevant, and personalized to different populations within the workplace in order to be successful,” says Ray Marra, senior vice president, group products at Guardian.

While all employees find tailored benefits communications and support valuable, six in 10 say their benefits meetings would be more relevant if they were targeted by age. Those within the first five years of working feel they need more personal advice during enrollment. If employers increase access to education and advice, it may benefit the nearly seven in 10 early entrants who say finding a trusted source of financial advice is highly important. Unfortunately, just 33% of employers place high importance on tailored communications, and a scant 13% have implemented such an approach.

“Our research reveals that employers are demonstrating a renewed focus on improving employee satisfaction,” Marra says, noting that the firm has seen an increased interest from employers for support services as more of them look for customized education materials, enrollment technology solutions and personal services. Making available benefits counselors and an employee benefits hotline can help employees make the best benefits choices for their current situation, according to Marra.

The Guardian Workplace Benefits Study is available on firm’s website.

The Markets September 15, 2015

The ABCs of Special Situations Funds

Special situations funds are a kind of under-the-radar fund that usually require an invitation to participate.
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Also known as co-investment vehicles, special situations funds offer retirement plan sponsors several benefits. But, according to TeamCo Advisers, which manages the portfolios of some hedge funds and other opportunistic alternative investments, plan sponsors should get to know the basics.

Special situations funds can arise from any one of a number of occurrences. For instance, according to TeamCo’s white paper, “Special Situations Funds: A Private Party Worth Crashing,” a reeling Argentine bond market in 2013 presented the potential for previously untapped markets to a U.S. hedge fund manager. But the firm’s flagship fund was not the right place for this opportunity. Instead, the firm created a separate vehicle that matched the uncertain liquidity profile of the debt.

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Kurt L. Braitberg, a portfolio manager with TeamCo, defines special situations funds as relatively illiquid hybrid investments launched periodically by hedge funds. “Structurally, they are very similar to private equity in that they have a commitment and drawdown structure,” he tells PLANADVISER. The funds are formed, usually, to take advantage of an opportunity that may not be suitable for the hedge fund’s underlying flagship fund, either because of the magnitude or the illiquidity of the opportunity.

Speed is a factor in their formation, Braitberg says. “These structures tend to be developed very quickly,” he explains. “Opportunities are identified, structures are created and often they are launched anywhere from two to four or five months.” The reason for the tightened time frame is that the managers want the fund up and capital invested quickly, with most funds typically in the $250 million to $500 million range. “These are not multi-billion-dollar, years-long efforts,” he notes.

The rapidity of the fund’s formation means that the plan sponsor must conduct due diligence quickly—and manager selection is critical, points out Jeremy Kish, managing director of TeamCo Advisers.

NEXT: Funds may not be easy to find.

“Even knowing about these funds or getting the information that they exist or are being offered in the first place can be a challenge,” Kish tells PLANADVISER. Since relatively few consultants or private equity consultants review this space, plan sponsors could be without a due diligence partner.

For the most part, Kish explains, those firms launching special situations funds only offer the funds to their existing clients. The investments have appeared in the flagship fund in some capacity, he says, and limited partners will be familiar with the investment strategy before it becomes a special situations fund.

Others will need some time to learn about the vehicle and its strategy, Kish says, adding that advisers that work with hedge funds and know a team can accomplish this within a short period of time. “But a plan sponsor on its own would find it a tall task to get up to speed on the manager and the fund,” he believes.

That relationship with a hedge fund—either direct or indirect—is necessary for a plan sponsor even to learn about the special situations fund and be in a position to assess the opportunity, Braitberg says.

Braitberg says special situations funds share several characteristics. First, there are alignments of interest that exist between the fund’s general partners and the investors. “First and foremost,” he says, “the special situations fund is primarily created for the general partners. They see a great investment opportunity for the intermediate term that they want to take advantage of, and they want to do something beyond what they’ve allocated in their flagship hedge fund.”

In most of the special situations funds TeamCo has been in, the general partner has usually been the largest investor, Braitberg says, up to as much as 30%, instead of the usual 2%. The pricing is generally more favorable than typical private market funds.

NEXT: Quicker to market generally means lower fees.

Because the fund’s managers want to get it up and running quickly, they often do not charge management fees on committed capital, only on drawn capital. The funds have an inherent discipline, and if the opportunity dissipates the managers cancel the fund, bear the cost and release the investors from the commitment without charge.

One possible pitfall to be wary of, Kish says, is a fund being marketed over the course of eight months. “If they’re not a client of that hedge fund, the plan sponsor may well end up allocating capital to an asset-gathering firm,” he says. “There are some firms that we think are launching product to capture longer-duration capital, despite not having identified compelling opportunities.” The distinction between private equity and special situations funds is important, Kish says, with true special situations funds almost always being raised in response to an existing opportunity. In contrast, private equity funds are typically raised on the heels of the previous fund or in anticipation of an opportunity set.

One red flag to watch out for, Kish warns, is the sudden introduction of a product pitch in the middle of what was supposed to be an introductory conversation. Look for the partner’s own stake, lower fees and a short time frame, he advises. Special funds situations aren’t at eye level, so to speak, and Kish says they sometimes have to dig to find out a manager is creating one.

The top three benefits, Braitberg explains, are the attractive rates of return—12% to 25%—with significantly less liquidity. The listed fees are lower than those for private equity or hedge funds. Last, they will significantly diversify the defined benefit portfolio.

Kish explains the gaping chasm that exists between 1- and 10-year liquidity.

“Ultimately, there’s a need for capital between liquid and traditional private markets and few firms with the ability to supply it,” he says. A corporate DB plan sponsor that wants to capitalize on their ability to provide illiquid capital but does not want to take a 10- to 12-year risk could find this an attractive opportunity set.

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