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Editor's Corner - The Better Way

The Stable Value Investment Association's Spring Seminar in Henderson, Nevada this April was a breath of fresh air. I know that the expression is a bit tired, but the subjects covered at the Seminar were not. The conference focused on the future.

Stable value has contributed a lot toward enhancing the quality and return of defined contribution retirement accounts. It has also helped to improve the lives of retirees. One look at the growth figures for the stable value market makes it clear that it has been a true success. Still, I fear that many in this industry are overly comfortable with the current state of our business. I think of other businesses like steel, automobiles, or even retail brokerage services, that were slow to innovate. Each of them became dinosaurs, lumbering slowly along while more dynamic competitors raced ahead. I don't want to see that happen to us. There is a lot of life left in stable value and plenty of room for us to find better ways to help others while improving the health of this industry. The conference speakers could have been responding to my concern. Many of them are doing their best to improve on stable value performance and to find new, useful applications.

I'm sure that there are those who see no need to change. Stable value growth numbers are good. An aging society is more likely to up the percentage of their savings that they invest in stable value. Defined benefit plans continue to decline. The rise in automatic enrollment and increased pension publicity are expected to raise retirement savings. It all looks good now, but that can change. There is an increasing trend toward making lifestyle funds the default option for defined contribution plans. Plans continue to add new savings options. IRAs still rake in savings dollars - none of which can currently be invested in stable value. Also remember that the future will bring new, unforeseen challenges as well.

Several asset managers spoke at the conference about new investment strategies that they have developed to add value. Among the strategies they detailed were: currency-hedged, non-dollar bond investments; currency and non-dollar futures overlays; and investments that take advantage of term, volatility, and liquidity market premiums. I'm sure that there is plenty of debate about which strategies best serve stable value plan participants, but I think that it is encouraging that people are searching for new ways to increase returns.

A number of speakers showed great depth of knowledge on several new possible markets for stable value assets. 403(b) plans have the potential for significant future growth, although there are currently several obstacles to adding stable value in all its forms. Workers in the educational and other non-profit sectors utilize 403(b) plans. Roth 401(k)s, a new innovation, are another potential source of new asset growth. It seems likely that Roth 401(k) assets will soon be found in commingled stable value funds. Although some Taft-Hartley (union) plans have utilized stable value funds for some time, they were mentioned as another area of potential future growth. 401(a) plans and Health Savings Accounts (HSAs) were also discussed by the presenters. 401(a) plans are funded by employee contributions on an after tax basis. HSAs are a useful tool for saving pre-tax income to fund later medical expenses. They are a small but growing investment vehicle. There was even a suggestion that stable value mutual funds may one day be revived to allow IRA investors the opportunity to invest in stable value. Finally, several people suggested that stable value markets may develop outside of the United States.

I know that there are people in the stable value world who are content to sit back and let someone else do the development work. They may be fooling themselves by thinking that they will benefit from the efforts of others. Many of the new markets mentioned have complexities that are apparent only after significant research. Product development takes time and real effort - even if someone else has already blazed the trail. Additionally, some new markets may not need very many service providers. We have seen this before. Latecomers received nothing for their efforts but bills from their consultants. Essentially, I am saying that anyone who feels that their business needs to grow should be doing their best to examine new opportunities now. It is easy to wait for someone else to make the effort, but that may result in missing an opportunity altogether. I've often heard people say that they want to be second into a market. That kind of thinking more often lands them in fifth place competing for the leftovers. There are always better ways to provide stable value. We need to find them.