It's been more than a year since Richard Davies joined Russell Investments as Managing Director- Defined Contribution. He arrived from AllianceBernstein, where he served as Senior Managing Director, Defined Contribution and Insurance Sub-Advisory Relationships.
Money Management Executive spoke to Davies about his first year on the job, what is changing in asset management, and what the firm is doing to improve its place in consulting with asset managers.
So you've just passed your rookie year at Russell. How would you grade yourself?
Of course it's an A+, right?
Russell has had great intellectual property in DC for some time. When the recruiter called and mentioned Russell, I had a very positive reaction on the first phone call.
The reason why I'm here is to take that intellectual property and commercialize it. I think I would give us pretty strong marks during the first year in packaging pre-existing and new investment strategies. On that front, we've definitely beefed up our custom target date offerings on the implementation side and how we tell the story.
We have launched a set of real asset services that we've been taking to the marketplace, including some new fund products. We've revamped the lineup of our packaged collective trusts for target dates. So for the last few months, we've turned our efforts to much greater work with our sales and client services organizations to get out in front of our existing and new clients and make them aware of Russell services.
We're turned from product development to heavy marketing, and that's really been going on for the last three months.
What do you think is the market's perception of the firm?
For some people in the industry, they still think of Russell as a consulting firm, but their understanding of what we've done on the asset management side isn't fully formed.
Frankly, once we're able to get in front of people to tell our story, we're getting invites back. We've had some meaningful wins with some very prestigious clients in the consulting and custom target date space in the past year.
I think we have a unique heritage of being a leading consulting firm to institutional clients as well as an asset manager with the hands-on experience that comes from actually managing money. I had seen that as a competitor to Russell in my AllianceBernstein days.
My mission is really to grow our asset management business, but we already advise consulting clients on more than $90 billion in DC assets and they tend to be some of the largest plans in the country. We manage nearly $12 billion in DC assets in the U.S. We're not going after marketshare growth in consulting for the sake of growth. We really have always focused on clients who are large and have interesting problems .
Can you talk about some of the trends you're seeing in the DC world when it comes to portfolio construction?
After 2008, managing risks in DC plans is something that is still on the minds of plan sponsors. We clearly saw a change in plan sponsor preferences pre and post-2008.
The primary place you see that is within the target date structure. It's clear that the central investment issue facing DC plans is going to be default portfolio structure, and most of the time that's going to be target-date portfolios. When sponsors talk about risks in their plans, they're primarily talking about risks in their target date portfolios.
Post 2008, you see sponsors more concerned about the equity exposures in those portfolios. I think there is a movement towards conservative asset allocation in target-date funds. Another risk that isn't looming large yet, but people are starting to think about it, is that there's a decent chance inflation is going to come back given all the stimulus that's going into the economy. So the whole area of real assets has been one of a lot of attention.
We've actually just published a white paper on the use of real assets in target-date funds and in DC in general. REITs is probably one asset class sponsors are familiar with in their plans. Now, we're defining real assets as REITs, commodities and listed infrastructure. Often, DC sponsors want to combine this with an allocation to TIPs.
By having a meaningful allocation to real assets within participants' portfolios, you improve your chances of maintaining purchasing power during periods of high inflation.
What are you hearing from sponsors when the topic of retirement income comes up?
We continue to be active in terms of our product development activity there. I think there is still strong interest on the part of plan sponsors. In fact, one of my colleagues recently gave a presentation to 20 pension funds at a conference and our topic included a discussion on retirement income.
I think the challenge is that there has been relatively low adoption of in-plan guaranteed solutions.
Sponsors are concerned about fiduciary risks and while the DoL and Treasury have been very encouraging in supporting innovation of annuities within 401(k)s, there are no safe harbors at this point.