PLANADVISER - September/October 2019 - 7

Keeping Stable
Value Options Stable
I
n times of volatile weather in the capital markets, many definedcontribution
(DC) plan participants seek the safe haven of their
plans' capital preservation options. Although the prevalence of
target date funds has reduced the number of participants charting
their own courses of portfolio allocation, at least one survey1
indicates
that about 15% of participants select a stable value option
for their DC plan account if one is made available to them-about
twice as many as those participants selecting money market funds-
making stable value a significant part of a plan lineup.
But stable value options are complex products, tying together
fixed-income portfolio management with mechanisms for allocating
returns, and guarantees (based on the insurer's claim-paying ability)
to ensure that the products perform the way they are intended to
be. PLANADVISER spoke to Craig Lombardi, who heads retirement
provider ICMA-RC's DCIO team, and Karen Chong-Wulff, who leads
the firm's Fixed Income team, about the increased due diligence plan
sponsors are exercising in selecting stable value options, as well as
the firm's diversified approach to managing stable value investments.
PA: What advantages do stable value options offer to plan
sponsors and their plan line-ups?
Chong-Wulff: For sponsors, stable value is an important building
block in plan design because it provides a conservative option for
capital preservation with liquidity and relatively attractive returns.
Stable value products are backed by short- to intermediate-term
bonds, while money market funds invest in shorter-term instruments,
with maturities of less than a year.
PA: What's your edge in stable value?
Lombardi: We believe we can be more nimble, for example, with
respect to the custom solutions we create that make up a stable
value portfolio. Retirement plan consultants or advisers also have
direct access to Karen, who oversees the stable value and fixed
income portfolios and has been in the business for over 30 years.
Karen and her team are doing bottom-up research every day, and if
a retirement plan consultant or adviser wants a deep dive into their
portfolio, Karen and her team are available.
We're also trying to help the plan sponsor community evaluate
their options for stable value products. A growing part of the DC
sponsor universe, including smaller plans, is taking an institutional
approach to investment selection, looking beyond what the recordkeeper
offers. We believe that should also apply to stable value. So
we've assembled a robust set of resources on our institutional web
site: www.vantagepointfunds.org to help advisers and sponsors
find the information they need to make sound decisions for their
plan for the long run.
PA: What are some of the risks that should be considered
with stable value investment products?
Chong-Wulff: There are several risks to always keep in mind. Plan
sponsors and their advisers certainly want to look at credit risk and
also at the components of the stable value product. Is it made up of
a single product or are there multiple products that are managed by
SPONSORED SECTION
Karen Chong-Wulff
Craig Lombardi
a stable value manager? For products that are comprised of multiple
issuers, are they backed by diversified portfolios of fixed income
securities that are managed by one or more fixed income managers?
In addition, the volatility, diversification, and credit risk of the underlying
securities in the portfolio should also be considered.
Some stable value managers will manage a large portion of their
portfolios internally, but that can create manager concentration risk.
Then there is issuer guarantee risk, and whether they will have the
staying power to provide book value liquidity to the participants in
worst-case scenarios.
In our investment process, we aim to control those risks through
diversification and due diligence. We use several outside investment
firms to manage portfolios, so that reduces the risk in the investment
strategies, and of course we monitor how they manage the
portfolios. As for the guarantees, we also engage multiple issuers
of guaranteed investment contracts and insurance wraps. By relying
on multiple providers, we're able to obtain ample capacity for our
products, as well as manage risk. n
1
" How America Saves 2019 " from The Vanguard Group. Inc, Valley Forge PA, 2019
About ICMA-RC/Vantagepoint.
Founded in 1972 through the assistance of a Ford Foundation grant,
ICMA-RC's mission is to help public sector employees build retirement
security.
It all began when the International City/County Management
Association (ICMA) had the vision to create an organization dedicated to
the retirement needs of public sector employees, and thus ICMA-RC was
formed. Consistent with our mission, ICMA-RC launched the predecessor
to what is now the Vantagepoint Funds. Historically the Vantagepoint
Funds were made available solely to ICMA-RC's public sector retirement
plan administration clients. In 2017, ICMA-RC extended its mandate
to make these Funds available to public and private sector plans in the
Defined Contribution Investment-Only (DCIO) market.
This information is intended for institutional use only. Investment advisory services are
made available to institutional clients through Vantagepoint Investment Advisers, LLC (VIA),
an SEC registered investment adviser and wholly-owned subsidiary of ICMA-RC. For more
information, please see VIA's Form ADV, available at www.adviserinfo.sec.gov. When
Funds are marketed to institutional clients by our Defined Contribution Investment Only
(DCIO) team, the Funds are offered by ICMA-RC Services, LLC (RC Services), an SEC registered
broker-dealer and FINRA member firm. RC Services is a wholly-owned subsidiary of
ICMA-RC and is an affiliate of VIA.
This is not intended as a solicitation
nor does it constitute investment advice.
The asset class discussions included herein
are not meant to be exhaustive.
tional
information on a particular
For addifund,
please
review the fund's disclosure documents.
Neither ICMA-RC nor its subsidiaries
are responsible for any investment
action taken as a result of
risk
this piece.
tolerance,
Investors should carefully consider their
own investment goals,
and liquidity needs before making an
investment decision.
Investing involves
risk, including possible loss of the amount
invested.
Information provided has been
obtained from sources deemed reliable,
but is not guaranteed. Past performance
is no guarantee of future results.

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PLANADVISER - September/October 2019

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