During a panel discussion at the PLANSPONSOR National Conference, Josh Kruk, head of Stable Value Portfolio Management at Dwight Asset Management, a Goldman Sachs company, explained that since the financial crisis, wrap providers dropped out of the business, stricter regulations have passed and insurance companies and banks have adjusted fees to reflect greater asset risk. He thinks the changes have been good for the industry.
Tony Luna, portfolio manager at T. Rowe Price Associates, added that the crisis weeded out survivors in the marketplace and education about stable value investments increased. Plan sponsors are able to pick a good stable value manager by looking back at how they did, he said.
According to Kruk, one risk area now is interest rates. Plan sponsors should analyze how a stable value product will respond to rising interest rates. “Use firms that have been around a long time and been through ups and downs,” he added.
Luna said plan sponsors should understand the current crediting rate of a stable value product and its market value to book value ratio.
According to Warren Howe, plan sponsors’ due diligence should also include knowing the size of funds and how well diversified they are. He recommended the Hueler Pooled Fund Universe as a good benchmark. Kruk added that plan sponsors should understand the component parts of the product—how the provider chooses wrap providers and how managers choose underlying investments.“Remember, it is a fixed income product, and you would evaluate it the same as any other fixed income investment,” Luna said.