NEW YORK -- MetLife is reinventing its stable value program, offering a new commingled fund approach for defined benefit and 401(k) plans.
The program, Stable Value Investors, offers 15 commingled stable value funds and a new game plan for selling more stable value products at a time when new allocations to the asset class continue to decline.
"We had a lot of pieces around to construct a full stable value manager solution, but never tied them together," said Mark Foley, director, guaranteed products marketing.
Stable Value Investors is being offered in addition to the Met Managed GIC, a GIC alternative strategy with more than $12.5 billion in assets. The firm manages more than $21 billion in stable value. As part of the new program, which offers a wide range of actively managed funds, the firm has formed alliances with six fixed-income managers, which will manage the underlying assets to be wrapped by MetLife.
The active management approach is what makes the initiative unique, according to Mr. Foley.
The alliances are with: State Street Research & Management Co.; Loomis, Sayles & Co. LP; Back Bay Advisors LP; Goldman Sachs Asset Management; Morgan Stanley Dean Witter Investment Management; and Pacific Investment Management Co.
MetLife owns State Street, while Loomis, Sayles and Back Bay are affiliated with the company through Nvest Cos. LP.
The new family of commingled funds to be managed by both MetLife and the affiliates comprises Liquidity Plus Fund, Government Securities Fund, AAA Securities Fund, Intermediate Duration Fund, Diversified Securities Fund, Broad Market Fund, Extended Market Fund, Extended Core Bond Fund, Medium Grade Fund, Global Bond Fund, International Securities Fund and the Equity Index Fund.
In addition, there are also three duration funds: intermediate, core and long duration.
Also offered will be four allocation funds that have varying degrees of risk, similar to the lifestyle funds already used by defined contribution plans, that will be made up of the other 12 commingled funds.
The aggressive fund has a 15% allocation to domestic equities. The fund will never invest more than 20% of the portfolio in equities, Mr. Foley said.
The wrapping of equities is a controversial strategy in stable value, but not a new one, said Eric Kirsch, managing director overseeing stable value at Bankers Trust Co., New York.
Most stable value managers don't use equities in their portfolios because of the potential loss of liquidity and how much the portfolio costs plan sponsors, according to those in the industry.
High-yield bonds also are rarely used because of concerns over risk and liquidity.
"Most sponsors who want to use stable value don't use high yield," said Mr. Kirsch.
Mr. Foley said liquidity is not a problem, because the riskier investments, such as equities, are not a large portion of the more aggressive asset allocation funds.
The actual increase in the cost of wrapping riskier investments that is being passed on to investors will be minimal. The cost difference between the conservative and aggressive allocation funds will range from seven to 10 basis points, Mr. Foley said.
Clients also will be able to customize a stable value portfolio using the managers with which MetLife is affiliated, if they don't find the commingled funds as attractive.
