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  • The Number of funds nearly tripled from 3000 to more than 8,200 from 1990 to 2002. Source: ICI.
  • The Number of funds nearly tripled from 3000 to more than 8,200 from 1990 to 2002. Source: ICI.
  • The Number of funds nearly tripled from 3000 to more than 8,200 from 1990 to 2002. Source: ICI.
  • The Number of funds nearly tripled from 3000 to more than 8,200 from 1990 to 2002. Source: ICI.
  • The Number of funds nearly tripled from 3000 to more than 8,200 from 1990 to 2002. Source: ICI.
  • The Number of funds nearly tripled from 3000 to more than 8,200 from 1990 to 2002. Source: ICI.
  • The Number of funds nearly tripled from 3000 to more than 8,200 from 1990 to 2002. Source: ICI.
  • The Number of funds nearly tripled from 3000 to more than 8,200 from 1990 to 2002. Source: ICI.
  • The Number of funds nearly tripled from 3000 to more than 8,200 from 1990 to 2002. Source: ICI.
  • The Number of funds nearly tripled from 3000 to more than 8,200 from 1990 to 2002. Source: ICI.
  • The Number of funds nearly tripled from 3000 to more than 8,200 from 1990 to 2002. Source: ICI.
  • The Number of funds nearly tripled from 3000 to more than 8,200 from 1990 to 2002. Source: ICI.
  • Transcript

    • 1. Pension Sponsors and Asset Managers: Current Issues Robert C. Pozen Chairman MFS Investment Management ® Pozen: PensionSponsorsAssetMgrs November 2004
    • 2. Agenda Portfolio Strategy Hedge Funds Brokerage Costs Potential Conflicts
    • 3. Asset Allocation
      • Asset allocation, rather than security selection within asset class, drives 90% of long-term, plan returns
      • Yet most plan trustees and consultants focus most of their attention on:
        • Defining careful mandates for each sub-asset class
        • Choosing right manager(s) for each sub-asset class
      • New incentives are needed to reward good asset allocation
      Portfolio Structuring
    • 4. Bond Mandates
      • Prospects of rising interest rates undermine attraction of long maturity, high-grade bonds
      • Fixed-income strategies for pension plans
        • Match short-term bonds to near-term payout schedule
        • Use TIPs to match long-term liabilities
        • Use Core Plus to reduce duration
      • Emerging market debt coming of age*
        • Improving fundamentals in many nations
        • Increasing participation from institutions
        • Less volatile than in prior years
      Portfolio Structuring Source: JP Morgan
    • 5. Alternative Investments
      • Private equity funds
      • Pure long-short funds
      • Other hedge funds
      Portfolio Structuring
    • 6. Future Prospects on Returns
      • Huge increase from 1990 to 2003
        • 2,000 to 8,000 funds
        • $40 billion to $817 billion
      • Returns slightly ahead of S&P 500, with less volatility than index
        • But only voluntary reporting
        • Bias from non-survivors
      • Must find new strategies to succeed
      Hedge Funds Source: The Wall Street Journal
    • 7. Monitoring Issues for Plans
      • Calculation of fees
        • 1% to 2% of average assets
        • Plus 20% of gain (above what?)
      • Valuation of portfolio securities
      • Degree of leveraging (borrowing)
      • Opportunities for exit
      Hedge Funds
    • 8. Regulatory Reforms
      • Big increase in enforcement cases
      • Proposed registration as advisers
        • No substantive regulation
        • Exemption of performance fees
        • Periodic SEC inspections
      • Registration of fund of funds
        • Sold to investing public
        • Disclosure not substantive regulation
      Hedge Funds
    • 9. Soft Dollars
      • Definitions
        • Seeking best execution: highest total proceeds, not lowest commission rate
        • Soft dollars = paying more than best execution in return for goods and services
      • Types of soft dollar services
        • Security research
        • Market data
        • Computer systems
        • Administrative services
      Brokerage Costs
    • 10. Current Controversies
      • Scope of safe harbor for soft dollars
        • Intellectual content on research
        • Meaning of other brokerage services
      • Suppliers and users
        • Mutual funds versus separate plan accounts
        • Wall Street firms vs. Independent research boutiques
      Brokerage Costs
    • 11. Execution Quality
      • Full-service vs. electronic networks
        • Commission rate vs. price
        • Capital to complete trades
      • Measures of efficiency and value added
        • Average commission per share
        • Plexus, Abel-Noser, ITD
      Brokerage Costs
    • 12. Managing Different Kinds of Accounts
      • Compensation structures
        • Percentage of assets managed
        • Performance based fees
      • Allocation of shares
        • Scarce shares in IPOs
        • Trades spread through day
      • Clashes between shorts and longs
      Potential Conflicts
    • 13. Providing Multiple Services
      • Pensions consultants moving into asset management
      • Performance measurement firms offer retail tools to choose portfolios
      • Asset managers go into actuarial services and/or human resource outsourcing
      Potential Conflicts
    • 14. Employer Stock
      • Retirement plans in the US often hold substantial portions in employer stock
      • Many companies use employer stock to meet DB or DC funding obligations
      • Is pension trustee or pension participant free to sell the employer stock?
      • Is the participant exposed to double risks, investment and employer stock risk, if the company becomes troubled?
      Potential Conflicts
    • 15. Conclusions
      • The relationship between plan sponsors and their asset managers is evolving from an arm’s-length outside contractor to a strategic long-term partner
      • Asset managers will increasingly be asked not just to manage portfolios but also to provide informal supplemental advice on:
        • Asset allocation
        • Performance attribution
        • Regulatory developments
        • Investment trends
    • 16. Conclusions (continued)
      • Plan sponsors will increasingly seek asset managers that have a sound investment process and also meet ethical criteria:
        • Present minimal conflicts of interest
        • Reduced reliance on soft dollars
        • Reasonable fee structures
        • Governance leadership