Insights for Advisors to Help their Retirement Plans Reach Peak Potential: Part 2

by Jason Levy, Sr. Counsel at Great Gray

Expert fiduciary advisors to retirement plans are the engine that makes the American retirement plan system the envy of the world. I had the honor to discuss insights and trends with advisors on a recent cross-country trip. In part 1 of this series, I addressed how Collective Investment Trusts (CITs) can benefit governmental retirement plans and the shift from 3(21) to 3(38) services. Here is part 2.

Private Market Exposure in Direct Contribution Plan Investments

I had the privilege of presenting with BlackRock, Goldman Sachs, and Wilshire to advisors in San Francisco about new investment options with private market exposure. My presentation focused on the fiduciary considerations for analyzing these investments, including insights summarized here. But the highlights for me were a-ha moments from my co-presenters who detailed unique diversification benefits that private equity and private credit exposure can offer.

• Private Equity. Carlos Rodriguez of BlackRock explained that the reason why the historical premium for small cap investments has diminished or may no longer be available is due to the secular shift away from small companies going public. Now, when many successful private companies go public, they often do so at a much larger capitalization size and therefore are entering the mid or large cap space. Therefore, the ability to access the returns small caps used to offer is more commonly via access in the private markets.
• Private Credit. Sean Murray of Goldman Sachs explained how private credit can potentially provide better returns at lower risk than high yield public bonds, in part, because of the premium companies pay investors for confidentiality while raising funds in the private market.

These insights solidified my view that, regardless of what investment is ultimately selected, advisors should develop the skills to analyze the unique aspects of investments with private market exposure and the unique diversification benefits they offer.

What Plan Sponsors Want From Advisors
Prior to joining Great Gray, I spent 13 years as a lawyer at the Covington & Burling law firm where I advised some of the most sophisticated retirement plans on fiduciary and ERISA investing issues. At the RPAG National Conference, I had the opportunity with Brandon Budd to lift the veil for advisors to explain what plan sponsors and employer plan fiduciaries look for in hiring and working with a retirement advisor. Some key takeaways:

• First Impressions Matter. Responses to RFPs aren’t check the box, copy-and-paste, exercises. Advisors should clearly lay out responsibilities, their knowledge of obligations, explain how they can work with a client to achieve positive participant outcomes in compliance with legal standards.
• A Trusted Source and Steady Hand. The best advisors help their clients ignore media hype and politicization to focus on their legal obligations. Whether its ESG, cryptocurrency, private market exposure, or another hot-button retirement issue that dominates the news, clients should be reminded to ignore the smoke and focus on their unchanged ERISA fiduciary obligations to select and monitor investment options reasonably determined to maximize risk-adjusted financial returns, net of fees.

It’s no mistake that U.S. Courts of Appeal describe ERISA fiduciary obligations as “the highest known to the law.” Retirement plan advisors have grave responsibilities to help craft investment lineups that many Americans will use as the primary means to create a retirement nest egg. I left my recent travels with the firm conviction that the advisors I met are up to this task.