Charles Schwab Corp. became the latest provider of a stable value product to exit the business, but the difficulties in securing wrap guarantees the company cited in announcing it would liquidate its $7.6 billion fund aren't being felt across the board.
Instead, industry watchers say a reversal of the wholesale retreat of banks and insurers from guaranteeing 401(k) participants against losses in these fixed-income-heavy capital preservation strategies is well under way.
The rising fees that providers have been able to command for wrap coverage over the past few years are driving that rebound.
Wrap providers found the risks they were facing in 2008 disproportionate to the six- to eight-basis-point fees charged then. But those fees are closer to 20 basis points today, which makes stable value a more attractive business proposition, noted Matthew Gleason, executive vice president with Burlington, Vt.-based Dwight Asset Management Co. LLC and head of the firm's $36 billion stable value business.
That's especially so with insurers increasingly offering “bundled” wrap coverage, with the condition that some or all of the guaranteed stable value assets be managed by the wrap provider's affiliates, effectively adding another 20 to 30 basis points of return for the business, Mr. Gleason said.
Against that backdrop, the financial crisis-inspired rush for the exits has stopped, and “people are trying to get into the business” of offering wrap coverage again, noted Christopher Tobe, principal with Louisville, Ky.-based Stable Value Consultants.
Still, the rebound in wrap availability doesn't imply a return to the stable value industry's pre-crisis salad days, when securing guarantees was cheap and easy, industry veterans say.
The hurdles insurers insist plan sponsors clear to garner wrap coverage remain much higher than before 2008, and commingled products in particular — like the Schwab Stable Value Fund — are facing greater difficulties securing a piece of that expanding pie than are big plan sponsors using separate account vehicles, those veterans say.