As Market Stabilizes,  Stable Value Industry Looks to Growth

With the turmoil of the 2008 financial crisis largely in the past, the stable value industry is turning its focus to growth.

The latest SVIA survey of 22 stable value managers shows that from the end of 2012 through the first half of  stable value assets held fairly steady. In total, stable value funds now account for about $721 billion in assets, or roughly 12 percent of the money held in defined contribution retirement savings plans as of 2013.

“That’s pretty amazing,” SVIA Chairman James King said in opening the SVIA Fall Forum in Washington, D.C., on October 13. “It is one of the single largest asset classes available to DC plan participants.”

King congratulated SVIA members for holding the stable value asset class together throughout the financial crisis and its aftermath. Now, he said, it is time to devote the same energy to growing the industry via innovative new product development, exploring new markets and perhaps even “cracking the code, potentially, for the IRA market,” where stable value funds are not available. King noted that the U.S. Government Accountability Office is taking a second look at Department of Labor guidelines on qualified default investment alternatives, or QDIAs, in defined contribution plans. Stable value was not designated as a QDIA. But King said that SVIA has been in discussions with the GAO, providing it with information about what stable value is, how it works, and ways in which it could function as a principal-preservation QDIA in defined contribution plans. He said he is optimistic that regulators will revisit stable value’s potential role in the QDIA lineup.

Stable value has remained popular despite a general decline in interest rates since the financial crisis. That decline has helped push down the average crediting rate offered by stable value funds. Among the managers surveyed by the SVIA, the average crediting rate had fallen to 1.93 percent as of June 30, 2014, down from 4.15 percent at the end of 2008. Still, stable value crediting rates remain attractive relative to the roughly zero percent returns that many money market funds have delivered over the past few years.

King also shared statistics indicating that the much-discussed tightening of investment guidelines for stable value funds in the wake of the financial crisis may not have been as onerous as anecdotal evidence suggested. Since the crisis the average duration of the stable value funds represented in the SVIA Quarterly Characteristics Survey has held fairly steady: 2.87 years as of June 2014, versus 2.84 years as of December 2008. Also, the average credit quality of those portfolios, while still high, actually moved lower over that period of time, to AA- from AA+.