Investment Products and Service Launches

Free Tool Helps Advisers Identify Return-Driven Investment Factors, and Putnam to Launch Alternative Strategies Funds.

Free Tool Helps Advisers Identify Return-Driven Investment Factors 

Optimal Asset Management (OAM) is aiming to help institutional investors and investment advisers identify and implement investment factors that drive portfolio returns through its Factor Allocator visualization tool.

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This is a free, web-based educational tool that features more than 20 years of historical factor-based index data from S&P Dow Jones Indices. The tool includes a “Factor Playground” feature which provides visual feedback on the impact of various factor choices. A “Factor Fit” tool helps financial professionals estimate the underlying mix of factors driving the returns of a mutual fund, exchange-traded fund (ETF) or active manager. Furthermore, the “Factor Fit” can help evaluate whether it may be appropriate to substitute an investor’s mutual fund or active manager holdings with a combination of low-cost ETFs that target similar returns drivers as the mutual fund or other core holding.

“As Smart Beta, Factor Based Investing and Style tilted strategies become more mainstream, there is an urgent need for easy-to-use tools to help investment professionals educate themselves about how to implement factors in their core portfolios,” says Vijay Vaidyanathan, PhD, chief executive officer of OAM. “We built Factor Allocator to help investment professionals play around and get comfortable with the exciting new generation of factor-based building blocks. Factor portfolios that seek to outperform and reduce risk at low cost can play a transformative role in client portfolios.”

Advisers can register for Factor Allocator at Optimalam.

Optimal Asset Management is an SEC-registered investment adviser specializing in the application of factor-based investing and technology to the asset management process.

NEXT: Putnam to Launch Alternative Strategies Funds

Putnam to Launch Alternative Strategies Funds

Putnam Investments will release several mutual funds that adhere to three alternative strategies aiming to provide advisers and their clients with portfolio construction tools designed to help them navigate varying market conditions. These funds will be sub-advised by PanAgora Asset Management and are expected to be available in the marketplace in the third quarter of this year.

The Putnam PanAgora Risk Parity Fund seeks total return under varying economic conditions through strategic allocation across asset classes. It is a multi-asset solution seeking to balance the fund’s portfolio risks and generate more stable returns and greater downside protection than more traditional multi-asset approaches. The fund allocates to equities to preserve capital during economic contraction by allocating to nominal fixed income, and to protect from inflation with commodities and inflation-linked bonds.

The Putnam PanAgora Market Neutral Fund pursues uncorrelated alpha by investing in long/short equity strategies. It is a systematic long/short global equity market neutral strategy that seeks to generate attractive absolute returns that are uncorrelated to general equity markets by identifying and exploiting multiple inefficiencies that exist in global markets. The fund will pursue a similar approach as the PanAgora Diversified Arbitrage strategy, which was incepted in 2010 for the institutional marketplace. 

The Putnam PanAgora Managed Futures Fund seeks absolute return through a managed futures strategy that is designed to provide meaningful diversification to traditional asset classes. It seeks absolute return through a managed futures strategy that is designed to provide meaningful diversification to traditional asset classes. The fund utilizes systematic long/short exposure to liquid futures and forwards across commodities, equities, fixed income and currencies.

“We have entered an era when the marketplace increasingly understands the need for innovative investment approaches,” says Robert L. Reynolds, president and CEO, Putnam Investments. “These three new products will give mutual fund investors and their advisers access to strategies that have been used successfully by the institutional market for many years. In broadening its slate of alternative offerings, Putnam will be bringing the specialized investment capabilities of our affiliate, PanAgora Asset Management, to our clients.” 

Princeton Retirement Plan Faces ERISA Challenge

The university is just the latest to face an ERISA class action lawsuit filed by one of its employees, alleging imprudence in the management of retirement planning benefits. 

A new lawsuit filed in the U.S. District Court for the District of New Jersey, Nicolas vs. Trustees of Princeton University, will make for some very familiar reading for retirement industry professionals.

The suit was filed by attorneys with Schneider Wallace Cottrell Konecky Wotkyns LLP and Berger & Montague PC—two firms behind some of the best-known examples of Employee Retirement Income Security Act (ERISA) litigation. Fidelity, Aon Hewitt, Charles Schwab, State Farm, Voya, Xerox and TIAA have all been named in suits filed by the firms in recent years.

This latest lawsuit includes broad swaths of text borrowed directly from those previous challenges. Here is how the classic claim is leveled: “Instead of leveraging the plans’ massive bargaining power to benefit participants and beneficiaries, defendant failed to investigate, examine and understand the real cost to plans’ participants for administrative services, thereby causing the plans to pay unreasonable and excessive fees for investment and administrative services.”

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Specifically, plaintiffs suggest Princeton inappropriately “agreed to pay an asset-based fee for administrative services that increased as the value of his participant account rose, even though no additional services were being provided.” Further, the suit contends, Princeton “selected and retained investment options for the plans that historically and consistently underperformed their benchmarks and charged excessive investment management fees, as well as share classes that were more expensive than other share classes readily available to qualified retirement plans that provided plan investors with the identical investment at a lower cost.”

The retirement programs of nationally known U.S. universities have increasingly become the targets of such ERISA claims. Broadly the lawsuits include many of the same disputes and seek similar forms of damages and relief, arguing that these retirement programs should look more like best-in-class 401(k) plans run by private sector employers. However there are many who argue this perception is fundamentally flawed, in that 403(b) retirement plans offered to college administrators and faculty will be serving potentially quite a different purpose from the perspective of the whole benefits package compared with a corporate 401(k).

NEXT: Reading into the Princeton lawsuit 

Among other lines of argument, the lawsuit zooms in on investment options provided by TIAA, in particular the plans’ principal capital preservation options. This slot on the investment menu, plaintiffs explain, is filled by the TIAA Traditional Annuity.

According to plaintiffs, the investment in imprudent for an ERISA plan for a variety of reasons. First, it “prohibits participants from re-directing their investment in the Traditional Annuity into other investment choices during employment except in ten annual installments, effectively denying participants the ability to invest in equity funds and other investments as market conditions or participants’ investment objectives change.”

The Traditional Annuity, plaintiffs assert, also prohibits participants from receiving a lump sum distribution of the amount invested in the Traditional Annuity unless they pay a 2.5% surrender charge “that bears no relationship to any reasonable risk or expense to which the fund is subject.”

Plaintiffs assert the continued offering of the annuity option conflicts with various ERISA standards that require plan sponsors to ensure the investment opportunities they present to employees are prudent and reasonably priced. Beyond this, they suggest “there is substantial additional evidence of a flawed process, such as incorrect reporting on the participant fee disclosure prepared by TIAA of expense ratios for the available Vanguard funds, making many of those funds appear more expensive than they really were.”

The text of the lawsuit actually directly quotes a 2012 PLANSPONSOR article as it discusses further claims regarding Princeton’s choices about recordkeeping for the plan. The plaintiffs essentially claim that an employer with the scale and sophistication of Princeton should have long ago moved to consolidate and rationalize its recordkeeping arrangements.

“Despite the long-recognized benefits of a single recordkeeper for a defined contribution plan, defendant continues to contract with two recordkeepers, TIAA-CREF and Vanguard,” the suit states. This is a claim that many 403(b) industry practitioners will view skeptically, given the differences between the typical 401(k), which indeed probably should have just one recordkeeper, versus a 403(b) plan, wherein recordkeeper capability to offer and service annuities is generally a much more important part of the whole equation.  

The lawsuit goes on to make the assertion that Princeton is effectively allowing “kickbacks” to flow to TIAA via revenue sharing from plan investments, representing, they argue, an impermissible conflict of interest that has prevented optimal plan performance. 

The lengthy text of the full complaint, including more specific details about the claims described above, is available for download here

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