A growing sense that the traditional advice-driven governance model isn't up to the task of shepherding institutional portfolios through today's volatile markets has spawned a growing number of converts to investment outsourcing during the past year.
The “overwhelming complexity” of diversified portfolios today and the “explosion of volatility” in capital markets are making it increasingly difficult “for serious investors to negotiate the process,” noted Jonathan Hirtle, president and CEO of West Conshohocken, Pa.-based outsourced CIO firm Hirtle, Callaghan & Co. LLC.
In a recent interview, Dalip Puri, who joined Chemtura Corp. in November 2010 as vice president and treasurer, said his company's decision-makers saw two major shortcomings to be addressed:
c decision-making that proved too slow to take advantage of the kind of market opportunities that presented themselves in 2008 and 2009; and
c a lack of time and resources to oversee investment managers and strategies for an increasingly complex portfolio.
At the end of an in-depth educational process, Chemtura hired SEI Corp. in February to oversee the Middlebury, Conn.-based chemical company's $737 million defined benefit plan.
Timothy P. Dykstra, vice president and corporate treasurer with Smithfield Foods Inc. since September 2010, said his colleagues reached similar conclusions when the Smithfield, Va.-based food processing company decided to revamp its governance structure for its $1 billion defined benefit plan, including creating an investment committee at the management level.
Smithfield Foods long followed an absolute-return investment strategy, but the world had changed, due — among other things — to the 2006 passage of the Pension Protection Act, Mr. Dykstra noted.
That new reality led the company to change the focus of its investment strategy to funded status, and conclude that its board — despite a wealth of market experience — didn't have the time or investment experience needed to oversee the defined benefit plan on a day-to-day basis, he said.
Following an RFP process, Smithfield Foods hired Russell Investments on Dec. 15, 2011, to serve as “co-fiduciary” of the company's DB plan, said Mr. Dykstra.