Consultant-cum-money manager Hewitt EnnisKnupp, Chicago, paired the long experience of its defined contribution consulting staff with the portfolio design experts on its investment management team to control the volatility of post-retirement income for defined contribution plan participants.
HEK has created a very small family - just four - of multimanager, multiasset-class funds: growth, income, inflation and capital preservation. The simple descriptive names are purposeful, designed to make it easier for defined contribution plan participants to understand and invest in the funds, said Matthew Clink, partner and U.S. head of portfolio management.
The objective-based funds are designed to control the risks that participants face at different stages of their careers to achieve retirement income adequacy, he said.
“There is interest in volatility management among defined contribution plan sponsors but increasingly, their goal is to control risks, including participant behavior, that could cause the participant not to meet the objective of having adequate income for retirement,” Mr. Clink added.
The HEK funds avoid “typical risks” that most asset allocation models seek to diversify away and instead “just manage the risk a participant encounters as he or she moves through their career,” Mr. Clink said, from not investing enough in equities during the early years of accumulation to not protecting the portfolio from too much equity volatility in later years. The inflation and capital preservation funds are designed for post-retirement income protection.
“We're still fans of target-date funds, but we decided that using separate funds allows us to manage the career-stage risk much more precisely than is possible in a target-date fund,” Mr. Clink said, noting that constant risk monitoring is a “critical component” of HEK's investment process.
The fund family is designed to be a series of consecutive investments for defined contribution plan participants as their career and retirement progresses.
Initial interest from HEK's 300 defined contribution retainer clients in the new funds has been encouraging said Kevin Vandolder, an HEK partner and defined contribution specialist.
The launch of the funds is “imminent,” Mr. Vandolder said, although a precise date hasn't been set.
“We've been talking to DC plans about these funds for nine months. We are excited about launching them soon,” he said. n
