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PS: Do you use a multimanager approach in your design? Sexauer: We do. Within the Allianz umbrella, we have PIMCO, which has a terrific global capability; we have RCM, which has a global footprint and is very good at bottom-up stock picking and growth style. We have AGI Capital, and the dominant units in there include NFJ, which is a long-standing value investor, and we have a quantitative group within AGI Capital that can do things that others can’t. We have a very complete menu of strategies. Where we are missing something internally, or need more manager diversification, we use third-party funds. Plus, when we see something we would like to have that would benefit our portfolios, we can have that strategy created by one of the Allianz affiliates. PS: You spoke earlier about how behavioral finance helps take participant behaviors into account. What about plan sponsors? Dial: We need to change the mentality about how plan sponsors think about target-date funds from a performance standpoint. For example, in a stock market rally, you don’t necessarily want your near-term funds (2015 and 2020) to be the performance leaders; that actually could be a red flag. Sexauer: A lot of behavioral finance is trying to understand our shortcomings as human beings, and then take advantage of that to work backward. If we can get people to save more for longer, and when they have large balances, typically near retirement, protect those balances so they are not panicked into the wrong decisions, we have added enormous value. In addition, when they are younger, and have less money at risk and more time to recover from losses, we can invest them in well-diversified (by assets and globally) risk portfolios. We continually can earn their trust and business by making our risk profile reliable and transparent while making active allocation and fund selection decisions that outperform a passive benchmark. If we do this, our target-date funds will have served them well: We helped them have enough assets to convert into income so that they can enjoy a long and well-earned retirement.
PS: Do you use a multimanager approach in your design?
Sexauer: We do. Within the Allianz umbrella, we have PIMCO, which has a terrific global capability; we have RCM, which has a global footprint and is very good at bottom-up stock picking and growth style. We have AGI Capital, and the dominant units in there include NFJ, which is a long-standing value investor, and we have a quantitative group within AGI Capital that can do things that others can’t. We have a very complete menu of strategies. Where we are missing something internally, or need more manager diversification, we use third-party funds. Plus, when we see something we would like to have that would benefit our portfolios, we can have that strategy created by one of the Allianz affiliates.
PS: You spoke earlier about how behavioral finance helps take participant behaviors into account. What about plan sponsors?
Dial: We need to change the mentality about how plan sponsors think about target-date funds from a performance standpoint. For example, in a stock market rally, you don’t necessarily want your near-term funds (2015 and 2020) to be the performance leaders; that actually could be a red flag.
Sexauer: A lot of behavioral finance is trying to understand our shortcomings as human beings, and then take advantage of that to work backward. If we can get people to save more for longer, and when they have large balances, typically near retirement, protect those balances so they are not panicked into the wrong decisions, we have added enormous value. In addition, when they are younger, and have less money at risk and more time to recover from losses, we can invest them in well-diversified (by assets and globally) risk portfolios. We continually can earn their trust and business by making our risk profile reliable and transparent while making active allocation and fund selection decisions that outperform a passive benchmark. If we do this, our target-date funds will have served them well: We helped them have enough assets to convert into income so that they can enjoy a long and well-earned retirement.
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