By Marijn Smit, AEGON Stable Value Solutions
In pulling together this last issue of Stable Times in 2011, I was struck by both the breadth and the depth of the articles. The articles, which highlight SVIA’s Fall Forum and Annual Meeting that was held on November 16-18, addressed many of the challenges that the stable value industry has faced in the wake of the financial crisis.
Stable value was one of the few asset classes that delivered positive returns during the height of the crisis, and it continues to provide capital preservation plus consistent, positive returns in the current low-interest-rate environment. And in this environment, stable value continues to offer a considerable premium over money market funds. No other 401(k) asset offers the unique combination of benefits that stable value has consistently provided, which will ensure it remains a core component in 401(k) participants’ asset allocation.
While the benefits of stable value to plan participants cannot be emphasized enough, stable value’s value proposition is under increased scrutiny by plan sponsors and their consultants. Simply put: Are the diversification benefits, principal preservation, conservative nature, and steady 100 to 200 basis point premium over money markets that stable value provides worth the additional work and attention that stable value funds require? This additional work is examined in more detail in this issue of Stable Times in discussions about capacity, the 12-month-put for pooled funds, looking at pooled fund performance in extreme market conditions, and new fee levels for wrap contracts. This examination of stable value is fundamentally good in two ways. It helps us build a better, more sustainable product that meets the evolving needs of plan participants and plan sponsors. And, it builds a better understanding of stable value among all stakeholders: plan sponsors, consultants, plan participants, stable value managers, and stable value providers, which the financial crisis pointed out was sometimes surprisingly lacking for an asset class that has over 35 years of solid performance. While alternatives to stable value are explored and at times even adopted, this has to come with the recognition that none deliver stable value’s unique combination of benefits. The industry has an opportunity to make stable value even more sustainable and available as we tackle the challenges ahead.
With financial pundits offering all sorts of advice on the markets and 401(k) asset allocation, I would advise that stable value is the one asset class that has offered both stability and consistency throughout all the turmoil in financial markets. For those who are wondering whether the additional work is worth it, I would offer that this seems a relatively small price to pay for the benefits that participants reap. And, as this issue will prove, stable value market participants are facing stable value challenges head on.
I hope you enjoy this issue of Stable Times as we mark up 2011 as another year in which the stable value industry has added to its successful track record.