Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. Print
March 23, 1998 12:00 AM

SAVING ACTIVE MANAGEMENT

Barry B. Burr
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    The principals at Richards & Tierney Inc. might proclaim themselves the saviors of active equity management. Or they could declare they have an answer to indexing. But they haven't created such labels for themselves, even though the results of their work for pension sponsors demonstrate their success.

    The firm, instead, gives its solution a drab, academic-like name: the "completeness fund."

    The firm's principals won't discuss their clients, although they include from publicly reported information the Harbor Funds, operated by Owens-Illinois Inc., Toledo, Ohio, and the Minnesota State Board of Investment, St. Paul.

    In 91/2 years of doing completeness funds, David E. Tierney, principal, said the firm has been successful at outperforming its clients' domestic equity targets, after all money management fees. Even so, completeness funds haven't caught on yet with any more than a few plan sponsors, even though they profess to look for better concepts in investment management.

    Thomas E. Richards, principal, points out pension funds using traditional allocations and manager selection methods have underperformed their benchmarks in the 1990s.

    "It's an educational process," Mr. Tierney said. "It requires a paradigm shift in thinking."

    Mr. Tierney developed the concept of the completeness fund. The completeness fund is designed to avoid the risk when certain investment styles fall out of favor periodically. It seeks to control that style risk by complementing a manager's or group of managers' composite performance, to ensure a client surpasses its domestic equity target.

    Mr. Tierney uses nautical images to describe the value of a completeness fund. Thinking of a pension fund as a boat, the money managers it uses sit on the gunwales. The boat lists to one side or the other, the result of the managers' style bias.

    The pension fund, with the assistance of its consultant, hires managers to adjust the listing. But it's very difficult to determine the right style and then find a successfully performing manager and then determine the proper allocation to correct the listing.

    "A completeness fund knows how to put weight on which side to judiciously right the boat," Mr. Tierney said. It "corrects style bias and leaves a manager's skill component."

    Some $4 billion is managed in completeness funds, affecting $20 billion in equity targets. Richards & Tierney manages the fund for the Harbor Funds. But often the firm serves as an adviser to a completeness fund manager a client hires, like Franklin Portfolio Associates, Boston. Such a fund can consist of 200 or more stocks and invest long and sometimes sell short.

    Because the fund compensates for style biases, Mr. Tierney said, a sponsor can select the best performing managers, regardless of a particular style, rather than hire an array of managers in various styles and sectors, often sacrificing performance to achieve diversification.

    "We believe you should hire the most skillful manager, regardless of where he operates," said Mr. Richards. "Most sponsors will hire only in certain areas, so they limit their opportunity set."

    "We're not saying every client needs a completeness fund, but it needs to investigate to see if the aggregate style bias it has is large enough to warrant one," Mr. Tierney said.

    "The cost of doing a completeness fund is less than half the cost of hiring an active manager," Mr. Richards said. "What you get with a completeness fund is more return and less risk."

    A completeness fund is no guarantee of absolute outperformance. "If the managers a sponsor hires aren't skillful, then it will underperformance its target," said Ann Posey, principal. "But a completeness fund will eliminate underperformance substantially because of style risk."

    "If you don't have any skill in picking managers, we highly recommend you index," Mr. Tierney said. "A completeness fund won't make up for an unskilled manager." There is no value added in saving those managers.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    Gender diversity is improving on FTSE 350 boards
    Gender diversity is improving on FTSE 350 boards
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    The Future of Infrastructure: Building a Better Tomorrow
    Fulcrum Issues: Equity Returns and Inflation — Choose Your Own Adventure
    What Matters Most in Considering a Private Debt Strategy
    Why pursue direct lending in the core middle market?
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing