Letter from the Managing Editor

In this Issue:

Letter from the Managing Editor

Fall Conference Focus: Pension Reform and LDI

30th Annual Conference Highlights

Marketing Edge: Client Education and LDI

Resource Guide: Get Up-To-Speed On LDI

In The Buyer’s Seat: Steve Yoakum, Missouri PSRS And PEERS

Frank P.L. Minard Receives 8th Lothrop Award

AIMSE Elects New Board For 2007-2008



One of the most important players in the asset management business is about to retire — the corporate defined benefit plan. Forced out by changes in government regulation, global competition and a changing workforce, DB plans, like the workers they represent are facing an entirely new environment.

Some observers believe that the bulk of corporate DB plans will be either terminated or frozen by 2011. Others have different time frames. Either way, the trend seems to be set. The question is not if, but when?

Plan sponsors, employees, consultants and AIMSE members will all need to adjust to this new world order.

In this issue of the AIMSE Advisor, we provide several perspectives on the change in the investment climate in this distribution channel. We summarize two panels held on the topic of pension reform at our Fall Conference. Interviews with consultants, plan sponsors and asset managers will give you a sense of how you can prepare your firm to work with clients as well as how to position your products for the future in this distribution channel.

Finally, Chris Krein scoured the landscape and offers a bibliography of resources including white papers, websites and people who can provide insight and advice as you consider how to respond to the changes in the landscape. See our Resource Guide.

Strap yourselves in, the changes in the corporate pension area look like they are leaking into the public space. Several municipalities have already eliminated pensions for new workers… but we’ll save that for another issue. In the future, the Advisor will dig into the changes in private wealth, endowments and foundations and specialty areas like health care, insurance and settlement trusts.

We hope you find this information useful.


Tony Wilkins, CFA

“First the industry has
to do its homework.
Don’t come to me and ask me about my plan, read up on it. If you can, get all the key players in a room once a year (from accounting, treasury, taxes,money managers, CPA, etc.) and share information.”



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  AIMSE 16th Annual Consultant-Plan Sponsor-Manager Dialogue
Pension Reform Sessions Highlights

AIMSE’s 16th Annual Fall Conference was held in New York on October 10–11, 2007.  With a clear focus on pension reform and liability-driven investment strategy, the conference included an in-depth review of the current environment for corporate defined benefit pension reform as well as a panel discussion of the implications for the investment management industry.

Keynote presenter Andrew D. Wozniak of Standish Mellon Asset Management helped participants understand defined benefit pension reform and outlined the impact on investment management sales and marketing.  Moderator Tony Wilkins of Northern Trust led a panel of experts in a discussion of how to respond to pension reform and in particular, to the trend µtoward liability-driven investment strategies.  Both sessions are reviewed below.

The following are highlights from Wozniak’s presentation:

Pension Protection Act:
Created for U.S. single-employer corporate pension plans (certain changes for multi- employer plans) to protect the Pension Benefit Guarantee Corporation (PBGC). 

The PPA determines how much cash is needed and when. It has nothing to do with how plans are recognized on the financial statements.

Financial Accounting Standards Board (FASB) Pension Reform:
Created for public, nonpublic and not-for-profit organizations to improve transparency, comparability, and reporting to stakeholders. 

FASB pension reform impacts how pensions are reflected on company financial statements. It has nothing to do with how plans are funded

Wozniak stressed the critical need for marketers to understand the differences in funding status and accounting issues for pension plans.  Often pension fund clients have different sensitivities — with funding it is about the cash that goes into the plan — and with accounting it is about how the financials/balance statement will be impacted.  Once marketers understand these differences, they then will need to get to know where the pension plan stands and then address the issue to which the plan is most sensitive.

Wozniak thinks it’s really up to the marketer to help the pension plan understand the differences as well if they don’t already.  The industry is moving toward a more “technical” sale with the relationship between the manager and investor still at a very high level of importance. 

Key Points

  • Corporate DB pension regulatory changes are significant
  • Keep funding and accounting rules separate in your mind
  • Changes bring a simpler, more transparent, market-related system
  • Funded status ratios are improving
  • At the end of 2006, there were $132.5 billion in assets from S&P 500 companies who sponsor DB plans
    • Aggregate funded status ratio of 101%
    • 71% of these plans are underfunded
    • Median funded status ratio of 91%          
  • As of the end of September 2007, BNY Mellon estimates:
    • Aggregate S&P 500 funded status ratio is 106%
    • Median funded status ratio is 96% as of the end of September 2007
  • Plans continue to freeze
    • 1/3 of corporate DB plans may be frozen by     2012
  • Ongoing plans have made little changes to plan management
  • Sponsors with frozen plans are rethinking their strategy due to surplus issue
    • If a plan is immunµized, the surplus will continue to build
    • If a company would like to eventually terminate its over funded frozen pension plan, the surplus would be subject to a 50% excise tax, in addition to ordinary income taxes
    • There is little benefit for sponsors to have a fully funded frozen pension plan
    • Excess pension assets may be used to offset the underfunding of another plan for the sponsor, increase benefits, fund health benefits, or pay certain nonqualified retirement benefits
  • Risk management is as popular as ever
    • Identity Risk — Liability-based risk:  cash and financial statement
    • Quantify Risk — Asset liability analysis, volatility of pension financials
    • Manage Risk — Liability driven investing, LIBOR-based strategies
    • Monitor Risk — Liability benchmarks
  • Expects a move away from “60/40”allocations
  • Trend towards “solutions-based” selling
  • Food for thought:  given the fiduciary responsibility and the balance sheet issue, are there competing forces at hand to make investment decisions?

Panel Discussion:  Responding to DB Pension Reform
Moderator: Tony Wilkins, Northern Trust Global Investments
Panelists: Peter S. Austin, Standish Mellon Asset Management
Dwight Kadar, formerly of Cooper Industries
Adam Levine, Watson Wyatt Investment Consulting
John Poos, Nortel Networks


Highlights from the panel discussion follow:

Kadar:  Cooper Industries felt they were forward thinking years ago regarding retirement benefits. They created a cash balance plan in 1987 and stopped retirement benefits in 1989. They felt they knew their companies were uncompetitive and needed to prepare.  401(k) plans are in place; continue to find that people don’t understand their retirement plans.  Dwight believes over the next 5 years, 70%-80% of plans will be frozen because accountants are now driving the pension plans.  In the 1990s, if the pension plans had focused on liabilities versus surplus they might not have been in this situation.

Poos:  Nortel suffered greatly during the tech bubble; lost assets significantly and went from 90,000 employees to 30,000 today.  Nortel has 52 pension plans:  18 are DB and 34 are DC.  In the U.S., the DB plan has $1B and DC has $2.5B.  They did a soft freeze in 1999 and will do a hard freeze in 2008.  Nortel is looking to leverage the combined assets and save fees.  PPA has had a great impact on Nortel.  Nortel has been on the LDI path for a long time and will continue in a movement to reduce risk.  Nortel is focused on balance sheet implications.  While not fully funded, they are taking positions to balance risk. 

Where do investment managers fit in here?  John believes there will be a merger of DB/DC assets and managers need to plan to handle that.  The U.K. is a pre-cursor to the U.S., and is ahead by five years while Canada is behind by five years.

Levine:  Within Watson Wyatt’s consulting division, Adam has been focusing on asset allocation modeling for some time.  He has an actuarial background and has learned that there is no one right answer for each plan.  Believes we are headed to a liability-driven world; LDI is likely good for well-funded plans but not always for underfunded plans.  Many factors need to be considered:  What’s the duration of the plan?  What’s the make-up of the plan participants?  What are the goals of the company and what do they want to accomplish?  With DB plans, the lack of understanding has hurt them over time and hopes it will be better in time. 

Austin:  As part of the Product Solutions Group, he designs LDI strategies for plan sponsors — constructs customized solutions.  There is no right answer, no LDI product that’s off-the-shelf for plan sponsors.  Managers can be creative to address clients’ needs.  Standish recognizes that pension plans aren’t fun to run especially given the scrutiny and expectations set, it’s harder and harder by the day.  The bottom line is that you need to protect the plan participants.  Money managers can think of asset liability studies and ask, “How do our approaches fit into the study?”  For example, a low volatility with alpha product would be appealing to a frozen plan.  These changes bring opportunities to try new things.  Education is key too. 

Questions from audience:

If the door is closing for pension funds, what can a long-only equity money manager do?

Kadar:  “First the industry has to do its homework.  Don’t come to me and ask me about my plan, read up on it.  If you can, get all the key players in a room once a year (from accounting, treasury, taxes, money managers, CPA, etc.) and share information.  Next, find out if the plan is continuing — if they are offering one option, if they are freezing, ask why and when and then offer a solution from there.  At the plan, the investment side and the management side do not want the volatility.  So, figure out if there is a role for your firm in five years down the road.  Managers should offer a mutual fund or an investment product that will help keep them at the forefront.” 

Poos:  “Long-only equity managers still ‘fit’ with DB plans that aren’t terminating their plans.  There’s a risk associated with terminating — downside risk-averse is where Nortel is most focused now.  They also fit in this new paradigm — I don’t think mutual funds have the advantage.  Fund sponsors are looking for new solutions that could come from long-only managers.  Fees with mutual fund companies are too high for DC plans.  LDI for plans that are risk-averse is an option.” 

Levine:  “We are not seeing a complete elimination of equity within LDI.  Equity is expected to outperform fixed income over time so we still have to have it.”

Austin:  “I believe there are two sources of risk — one:  interest rate = duration risk; two:  equity risk = investment risk.  Risk tolerance is manifested in the balance sheet impact, and in cash and on the income statement.  Long-only equity is appropriate for public funds, Taft-Hartley and E/F.”

If you could offer one piece of advice, what would it be?

Austin:  “Keep your solutions in context — products need to be placed in terms of the context of the plan.  What’s their rating?  Construct a framework and present it in an appropriate context.”
Levine:  “Manage pension funds to liabilities.  Trends include:  a move to LDI; reduction in equity; dollar duration type matching.”

Poos:  “I have time for innovative, creative solutions, and I’m thankful when managers bring them to me already knowing how they will help.  I don’t like to lay out my problems for managers — I know my plan status.”

Kadar:  “Strategic partnership — get to know the firm inside — meet with multiple constituents within the corporation (not just the CFO)”

The Advisor is grateful to Sally Stalcup of Stalcup Consulting (sally@stalcupconsulting.com) for these Fall Conference highlights. 





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Annual Conference Consultant Roundtables
“What’s Hot?/What’s Not?”

Ennis Knupp & Associates    

Most Discussed:

  • 30/30 strategies
  • Private equity
  • Infrastructure
  • LDI

Least Discussed:

  • Core plus fixed income
  • U.S. REITS
  • Enhanced indexing
Watson Wyatt  

Most discussion with clients:

  • Redefining manager structure from traditional (passive/enhanced
    index/active core/satellite/
    absolute return) to modern-day (“value creation” and “liability driven”)
  • Long duration bonds (DB plans), concentrated/
    benchmark-insensitive equities, multi-strategy enhanced index, lifecycle funds (DC plans)

Least discussion with clients:

  • 130/30
  • Commodities
  • US real estate
AON Investment Consulting  


  • Portfolio structure analysis to identify gaps for complementary active managers
  • Fee and expense analysis to assist committees in tracing and benchmarking investment and other costs
  • Contribution modeling to help plan sponsors to assess the future projected costs of DB plans and analyze their plans risk tolerances and liquidity needs
LCG Associates, Inc.  


  • Alternatives continue to be a focus although we do see significant search activity in traditional asset classes
  • Typically look for higher alpha strategies and do not mind tracking error in traditional equity mandates
  • Typically focus on growth and value mandates in equity searches


  • Have deemphasized core with the exception of indexing on occasion
  • Traditional, high quality fixed income searches declining —reducing fixed income allocations


  • Alpha: Private Equity, Infrastructure, GTAA, Hedge Funds, Portable Alpha
  • Global
  • Extended Strategies (130/30)
  • Concentrated managers
  • Defined contribution:  Pension Protection Act of 2006 (PPA)


  • International small cap equity
  • Hedge funds of all types, but especially multi-strategy and market neutral
  • Portable alpha
  • LDI
  • Active extension (e.g., 130-30)


  • Core fixed income
  • Mid cap US equity
Wurts & Associates  


  • 130/30
  • Portable Alpha (quant managers)
  • Liability Driven Investing
Fund Evaluation Group  


  • Recommending clients invest in broadly diversified fixed income portfolios with a well-diversified portfolio of equity and alternatives
  • LIBOR plus (absolute return)
  • Private equity (distressed debt)
  • Hedge funds (credit or mortgage focused)


  • Traditional core and core “plus” fixed income

F R O M   T H E   P R E S I D E N T

Dear Fellow AIMSE Members:

I hope this letter finds all of you healthy and energized as you close out a successful 2007.  The year has presented many challenges.  However, those who were prepared going into the year and those who continued to enhance their investment knowledge and effectively impart that knowledge to their prospects, consultant contacts and current clients stood a much better chance of achieving their sales and retention goals.  Education, preparation and access are the primary benefits of AIMSE membership.  I can confidently say that anyone who attended our Hedge Fund Conference, Annual Conference and Fall Consultant and Plan Sponsor Dialogue this year was well prepared to do their jobs more effectively.  We also had great participation at our Canadian Conference and the AIMSE International events in Europe—further benefiting our global membership.

We have been very busy here at AIMSE preparing for the upcoming programs we will be offering in the first half of 2008.   We will start the year with The AIMSE Wharton Investment Institute and the 2008 Canadian Conference in January.  These meetings will be followed by the 2008 Hedge Fund Conference in February and the 2008 Annual Conference in April at the Boca Resort and Club.  Please check the AIMSE website for agendas and speaker rosters.  I guarantee (when was the last time you used that word in a sales presentation?) you will come away better prepared to win more business and be viewed as a resource by your prospects, clients and consultants.

Please keep in mind that AIMSE is your association.  If you would like to be more involved in the organization, please send an email to the AIMSE office through the website or contact me or any of the board members to express your interest.  We need your ideas, input and enthusiasm to maintain our momentum and continue to provide the programs and services to our membership.


Thomas J. Barron
Program Notes
AIMSE 30th Annual Sales and Marketing Conference

Over 375 AIMSE members honored the organization’s 30th anniversary by upholding the tradition of learning from clients, consultants and each other at the AIMSE Annual Investment Management Sales & Marketing Conference April 29-May 1, 2007 at the fabulous Fairmont Scottsdale Princess in Scottsdale, AZ.  AIMSE legacy demands excellence in programming and this event was no exception.  Highlights from the conference program follow:

Trends Shared by Consultants
Moderator:  John Casey, Casey Quirk & Associates

Monica Butler, Russell

  • Focus on the individual (DC plan participants)
  • Increased complexity and breadth of products offered
  • Breaking up the herd (continuing to move away from 65% equity/35% fixed income); will be a variety of interest for each plan

Ron Peyton, Callan

  • Any strategy works if you can maintain it
  • Resources can help you repair problems from the past
  • Continue to contribute to the pension plan
  • Industry is maturing but the basics still apply
  • Evolution of chasing what’s working will continue

Cindy Hargadon, RogersCasey

  • Clients are being more pragmatic – liability matching, absolute returns – which is leading them to think differently about buying products.  They are incrementalists in making changes; cautious buyers.  Will be open to new ideas but you have to show them the track records that are verifiable and repeatable. 
  • LDI – has some skepticism:  is there sufficient liquidity?  Repeatability?

Dick Charlton, NEPC

  • In 2000, clients listened to what needs to be done – to pay attention to funding liabilities. 
  • Absolute return strategies – diminish risk – there’ll be a sea change into the next decade
  • Will see lots of different products (look at their website)
  • Relaxation of constraints – happening now; 10% of their client base is in alternatives, some have up to 50% allocation
  • Emphasis on capital efficiency:  risk reducing = hedge funds; equity enhancers = private equity



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What defines quality within a firm?

  • Still the traditional focus – the 5 P’s
  • Where’s alpha from and why is it sustainable?
  • How do you have insight and how can you convince us?
  • For synthetic and engineered products, you have to understand what you are doing, have passion and be committed (Charlton)
  • Ability to retain talented people--well compensated — why do they stay? (Hargadon)
  • People
  • Organizational stability
  • Never seen the industry so fluid — changes in organizations change the dynamics always
  • Want firms to be focused on clients, have good leadership, and excel at client service (Peyton)
  • Understand where their products fit (Butler)

Historical lessons learned working with consultants

  • Evolution of the consultant relations role has been great (Butler)
  • Having a single source for information is helpful; provide quality information versus trying to just push the numbers (Hargadon)
  • Not all consultants are the same — figure out their differences (Peyton)
  • Have checks and balances in place; share research and resources that help consultants with programs that are better for plan sponsors (Charlton)

What are implications of investment managers moving into the consultant space?

  • Look at PPA — asset allocation has to be done by a discretionary manager now; some managers are offering fiduciary advice.  NEPC won’t represent a manager and also compete against the manager — it’s one way or the other.  View NEPC as a conduit but if you try to disintermediate them, no thanks.  (Charlton)
  • Remember, you are good at what you do today (not yesterday)…consultants are good at the macro picture — at blending managers.  Managers are good at molding a product to match what’s needed. (Peyton)
  • RogersCasey thinks consultants are the voice of reason — can objectively say what’s good and what could go wrong…(Hargadon)
  • Ultimately the sponsor has to be trusted to make the best decision — for all, it’s about the plan participant; thinks working with manager is good in terms of collaborating on research, and teamwork is a good thing (Butler)



Common complaints of managers

  • Managers believing the consultants have more power than the clients (Butler)
  • Getting data right on all the products — think about the manager research group and all the data they receive (especially with all the M&A activity).  Also, need to find appropriate vehicles for the DC world. (Peyton)

Succession planning for consulting firms

  • Many have grown well but if an exit is not laid out, there will be consolidation.  May be like Affiliated Managers Group — goal is to get equity out of the firm.  (Charlton)
  • There’s a demise of the private firm — you have to provide/offer equity — it takes discipline, patience and optimism (Peyton)
  • Open exchanges are key/essential (Butler)
  • The management has to give ownership to the younger folks; make planning for the firm a more inclusive process (Hargadon)

What are your thoughts on big plans heading into alternatives and hedge funds?

  • Plans need to meet funding objectives — 70% of the revenues at NEPC come from clients who have relationships with alternatives managers (Charlton)
  • Not many of our clients are in hedge funds — buying them at this point doesn’t fit with the average client.  Although the traditional manager who is using hedge fund techniques at a lower cost than hedge funds is appealing.  (Peyton)

Thoughts on “DBizing” the DC plans?

  • The target maturation options need to offer less options (Butler)
  • “It’s the great American ‘put’”  (Peyton)
  • Look at PPA — plan sponsors need education…this is a full employment act for lawyers (Charlton)

130/30 strategies — thoughts?

  • We look for a good risk management process and evidence of ability to short (Butler)
  • Organizations with history of managing shorts; many are from quants; want products where alpha is less related to beta (Peyton)
  • There’s fundamentally a relaxation of constraints across the board (Charlton)
The Advisor is grateful to Sally Stalcup of Stalcup Consulting (sally@stalcupconsulting.com) for these Annual Conference highlights.
Experts Agree: Client Education Key to LDI Implementation
By Suzanna de Baca
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The Pension Protection Act of 2006 (PPA) requires that all pensions be fully funded in seven years, yet industry experts report many plan sponsors are still at the beginning of the learning curve and implementation phase of liability-driven investing (LDI).  Consultants and investment management specialists working in the LDI world agree that the keys to success for most firms advising or managing assets for plan sponsors are rigorous education and the ability to create customized solutions to meet each client’s needs.

Still Selling the Concept
“2007 has been the year of education around LDI and 2008 is the year for education and implementation,” says Lee Freitag, Product Manager for LDI at Northern Trust.  Freitag states that Northern Trust is seeing a lot of client interest in LDI strategies, but he observes a lag in the implementation of these strategies.

“Treasurers and assistant treasurers have to sell the concept to their committees,” according to Freitag. “It is truly a paradigm shift. To get plan sponsors to buy into that really has to come from education.”

Peter Austin, Managing Director of Standish Mellon Asset Management, agrees that progress is slow, but opines that FASB’s requirement to report funding status of plans on the balance sheet rather than as a footnote is spurring plan sponsors to move.

 “It’s not accidental that the regulatory changes have prompted this action,” acknowledges Austin. “At the end of the day, when it’s real — when it’s on your balance sheet — it’s about action, not just about making some shifts in your strategy.”

Mark Ruloff, F.S.A., Director of Asset Management at Watson Wyatt Investment Consulting, says that he and his colleagues began initiating conversations about LDI with clients in 2005, so they’ve seen significant approvals of new strategies.

“Existing clients are well down the path to implementing LDI solutions,” states Ruloff, “but new clients in general have not begun to study the issue.” 

Education and Customization
While LDI is often referred to in white papers and in the media as a single concept, the solutions required to meet each plan sponsor’s unique future liabilities are as varied as the pension plans themselves. 

“LDI solutions are highly customized — there is no off-the-shelf product called LDI that fits for every client,” Austin remarks. 

Ruloff notes that the strategies Watson Wyatt recommends to clients could be dramatically different depending on the client’s objectives and profile.

“I’ve had clients go to full immunization,” he says, “and some with on-going plans moving to 80% fixed income, or on the other extreme, clients with 70% or higher allocations to return-seeking assets.”

Northern also emphasizes that a tailored approach is needed for each plan.  Freitag reports that for Northern’s large existing client base of both custodial and investment clients, they’ve taken the time to visit each client and thoroughly explain their philosophy and process.  The challenge, he says, is getting the plan sponsors to engage.

“The client has to be open to it in order for us to get in and talk,” he comments, saying that if a client isn’t yet serious about LDI,  Northern’s team will make an effort to provide as much education as possible.

One of Northern’s most effective means of informing clients and potential clients around the topic has been to team salespeople together with a dedicated investment strategist with an actuarial background. 

“This investment strategist has gone out on 99% of the client calls,” explains Freitag. He notes Northern now has three such specialists in the U.S. and in London.

A Consultative Approach
Effective marketing and implementation of LDI strategies is going to require an attitude and methodology that is advisory in nature, these experts maintain. For firms like Watson Wyatt, the consultative style is status quo.
For institutional salespeople, however, success in working with clients on LDI will likely come from a shift in thinking about a specific product sale to how they can help the client design an allocation or course of action that is appropriate for the long-term success of their plan.


“The world today we’re in — the pension world and other environments like foundations and endowments — it’s less of a product oriented discussion and more of a consultative approach,” emphasizes Austin.  “What the salespeople need to assess are…the goals of the organization and then determine how your products and services fit in.”

Freitag describes Northern’s approach as highly educational and consultative as well.  They have developed comprehensive materials which describe the firm’s philosophy and process and explain how they can help measure risk in the client’s plan.  In the initial client contact, he says, they address the issue of LDI generally, and in the second client contact they offer to do an analysis of the pension plan.

“Then we go back with the numbers,” he says. “The numbers really show them the effect of how LDI can impact the plan… and then some of the interesting conversations really start to happen.”

Challenges and Opportunities
The main on-going challenge for consultants and sales professionals working in the LDI field are getting clients to actually pull the trigger in shifting asset allocations, these experts suggest.  Inciting clients to action will require a deep understanding of the issues involved in a new type of asset allocation and the ability to explain them in a focused marketing and sales process.

“In order for a consultant to really educate a client, you need to know more than just what LDI is,” Ruloff says. “You need to know why, when and how… if someone can’t explain that to a client, the client is going to be reluctant to implement anything.”

Ruloff also notes that advisors may need to be more active in monitoring whether or not clients have implemented the recommended changes even after a formal approval of a new allocation has taken place.

“There are some tactical decisions that color the process,” Ruloff reflects diplomatically, saying that, “Even though they have accepted the new strategy, there may be a delay in implementing it.”

Market conditions have played a large factor in that delay, Ruloff says.  Freitag backs up this observation, saying that he and his colleagues have observed plan sponsors sitting on the sidelines hoping that interest rates would rise.

“We don’t really think that anyone can really call interest rates,” he says, “but there has been a ‘wait it out mentality’.” 

In addition to understanding the concepts, it is important for sales people to have a good understanding of their firm’s own LDI strategy, says Freitag.

”It’s important to have your story straight about what you’re selling,” he comments. “We have a consistent story, philosophy and process.”

According to Austin, the biggest challenge for plan sponsors will be recognizing and accepting the potential performance consequences of implementing strategies focused on reduced risk.  Adapting to a mentality of risk management is difficult for those who have been rewarded for a return-driven approach throughout their careers.

“There is always a trade off,” he says, “Plan sponsors are understanding that with less risk and volatility there may be some higher costs or more accounting issues.

Austin emphasizes that it will be up to advisors and salespeople to help clients navigate the complex choices involved in designing a plan that minimizes some risks while actively managing others.  The role can be a very positive and valuable one, he says.

“When a sponsor understands the trade offs and weighs them, then they can create a successful LDI strategy,” advises Austin.

Questions? Comments?  Contact Suzanna de Baca at (515) 875-4874 or smdebaca@gmail.com

2007 Annual Conference Highlights—On the Web!

Over 375 members attended the 30th AIMSE Annual Marketing & Sales Conference in Scottsdale, AZ including 13 exhibitor companies and 44 industry expert presenters.  Check out our newly redesigned website at www.AIMSE.org for a gallery of photos and copies of presentations, including the in-depth presentation by keynote speaker, University of Chicago Graduate School of Business Professor Marvin Zonis on the “Changing Contexts of Global Politics and Economics!”

Member Resource Guide   Getting Up-To-Speed On Liability
Driven Investing








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The following links, provided by AIMSE Board member Chris Krein of Allegiance Capital Customized Investments, will help you educate yourself on the issues surrounding the Pension Protection act of 2006 and liability driven investing:


A point of view from Evaluation Associates’ Maryann DiMaggio, Director of Fixed Income laying out the progress of pension reform and the implications for managing pension liabilities.  From September 2006.

A white paper of LDI from GE Asset Management, John Flynn, Vice President, Fixed Income Product Management and Chitranjan Sinha, Ph.D., Portfolio Manager & Senior Quantitative Analyst define LDI and the issues facing plan sponsors in this 2006 primer.

Northern Trust’s take on how the investment strategies of pension funds are changing
in response both to regulatory changes and to the negative market conditions of recent years.  An in-depth white paper published in January 2007.

The Institutional Investor Guide to Defined Contribution & Defined Benefit Services for Plan Sponsors & Participants features a good and brief piece outlining the differences between an LDI strategy and a traditional approach as well as detailing 5 steps to a LDI strategy.  Tom Swain, consulting actuary, and Steve Guggenberger, senior investment manager, Wells Fargo Institutional Trust published the article in January 2006.

PIMCO details their research in the area and provides access to their white papers.

The CBOT weighs in with a pitch for 30-year interest rate swap futures as a solution for dealing with the challenges of dealing with the overall funding situation and the effects of the regulatory changes.


In the Buyer’s Seat
Steve Yoakum, Missouri Public Funds CEO

Steve Yoakum is the Executive Director of the Public School Retirement System of Missouri (PSRS) and the Public Education Employee Retirement System of Missouri (PEERS).  He has served in this role since June 1, 2001, and is an active supporter of AIMSE, having participated during the roundtable sessions at the Annual Conference many times.  In an interview with Sally Stalcup, Stalcup Consulting Steve was most generous with his time and open in sharing his insights on his role, working with public funds and trends in the industry.

You have served as a public funds CEO for 30 years, as well as having served as a trustee for 4 years, and a money manager for 4 years.  How did you become a CEO?

“I’ve taken an interesting path.  I had a professor at the University of Missouri back in the 1970s in one of my investment classes who was convinced that pension funds were where the money was going to be.  After I had finished school, I saw an ad for a pension fund officer and applied.  In 1978, that fund had $72M; today Missouri Public Schools have $33B; we are one of largest institutional investors in the nation. 

So the timing was pretty good for me.  The ‘70s and ‘80s coincided with the growth in the industry — and as the baby boomers went through their working years, the funds grew.  There was a new breed of pension professionals in the ‘80s who approached pension fund administration in a more professional manner, and I was in the right place at the right time.”

What is the scope of your role? How has it evolved?

“It’s very broad — from investments, actuary, legal, to tax laws regulating pension benefits.  You need to have a diversified skill set.  For me, I had a generalist educational focus in business school and that helped.  It’s benefited my career path.

The business has become much more complex as assets and interest in what we do have grown.  In the ‘70s and ‘80s, few people knew or cared who ran the retirement plan.  But now, due to growth of assets and the aging workforce, we get much more attention; it’s increased geometrically.  There’s so much more pressure for a number of reasons.  If we don’t earn the assumed rate of return, we put an increased burden on the taxpayers.  But, if we are good at what we do, we can provide higher benefits at lower costs to taxpayers.  It’s even more important for funds like ours whose members don’t participate in Social Security.  We have 200,000 active and retired members; and without Social Security, we are usually their total financial future. As you can imagine, they pay attention and are very interested in what we do.  In the public fund world, we operate in the proverbial fishbowl.  Demographics also play a role in raising our visibility.  For example, 45% of our active members can retire in the next 10 years.  The Baby Boom bulge is very real and that makes our job more challenging.”

What would you say is the optimal way for plan sponsors to stay educated and work closely with managers and consultants?

“First of all, most plan sponsors use the national associations as their primary source of education such as NASRA, NCTR and NCPERS.  Second, they attend specific industry conferences that deal with topics pertinent to their concerns, such as hedge funds, private equity, real estate, etc.  Third, many funds use captive educational programs provided by the fund via retreats, educational materials, research, etc.  Managers and consultants are associate members of the associations and are often sponsors, so they are able to add to the content of what’s being covered in a number of ways.  Also, as our staff puts together information for any required education, we call on the managers and consultants to help.”

How can managers help to educate or provide educational information to plan sponsors without seeming as though they are “selling”?


“It’s a fine line because you are providing information while the funds have to try to separate the wheat from the chaff.  This is a unique business.  Investment management marketing is unlike virtually any other type of marketing.  There’s a long sales cycle; prospect’s needs (and clients) can change radically and often.  Staff can change; goals can change.  The ‘sales’ process does not lend itself to the classic sales approach of meeting quotas, etc.  I’ve always said I don’t think you really sell in this business; instead, you make it easy for plan sponsors to buy.  Managers need to understand the fund’s goals and objectives, and know the decision makers.  That’s when they will make a difference. 

There is a trend I see developing where trustees are delegating more and more responsibility to the staff.  We as an entity are adding more staff — more CFAs; quality people.  While boards can and do set strategic direction for funds, much of the tactical decision making is now being made by the staff.  For example:

We are buying more complex, esoteric investments, and it is difficult for plans to be able to understand everything about them.  Plan sponsors are being more prudent at their approach and are delegating to the hired gun staff to do the tactical aspects of picking A and B.  For example, our board is active in the strategic decisions (primarily asset allocation decisions), but the board is delegating the picking of the managers to the staff.

The computer software that is available today to analyze and test portfolios is incredible.  Funds can do much of the research in house today that used to be delegated to consultants.  

We spend a great deal of time on the education of our board.  We want them to understand risk and how it all fits together.  It takes a long time to really get up-to-speed and understand it all.  So increasingly, the AIMSE marketing professionals are dealing more with staff than boards and it requires a different marketing approach.  The ‘70s and ‘80s were more relationship driven and today, with all the data, it’s more quantifiable than just relationships.” 

How active are you as a CEO with the board?  The staff?

“Extremely.  It’s my job to be the interface with the investment staff, the board, our members, employers, the legislature and the investment community.  Most academic studies say that your asset allocation decision determines 85%-90% of your return.  We want our board concentrating on those issues.  Once they understand the level of risk they want to take, the staff can then take the time to dig deep and understand all that’s needed to make decisions.  Managers can’t explain what all needs to be explained to the board during a twenty-minute formal presentation.  Consequently, today, we and many funds see no reason for managers to make presentations to the board; it’s just too hard for them to decide from this time frame, and it’s not fair for them to be asked to do so.  I think you’ll see more and more funds moving away from this twenty-minute approach for selection and evaluation.” 

What is your approach to selecting managers?

“First, we use a top-down theory.  We spend time early working with the board and our consultant developing the strategic plan.  Once that’s done, we go out to find the right people, firms, and investment styles to implement that plan.  We do extensive due diligence with prospective managers by meeting with them both in our shop and theirs which


helps up better understand each other and then create the most efficient portfolio we can.  The larger, more sophisticated plans are increasingly taking a similar approach.

But, it still comes down to trusting people.  You have to feel comfortable with them which means the relationship building is still there.  It’s not totally an objective business.”

In periods of high change and volatility (like now), what do plan sponsors need from managers

“Information — the ability to understand the manager’s strategies.  We want to understand why strategies are behaving the way they are.  We want to understand why they are declining; how will they perform when stress tested?  And with hedge funds, the lack of ability to follow the strategy and drill down is very different from traditional managers.  We need clear, honest communications around the strategy and what they see happening. 

We follow up on our existing managers on the areas where we are concerned.  If I were giving advice to marketing people, I’d say rather than selling to the plan sponsors, understand the risk the fund is willing to take, and then you can decide if they will buy your product.  You learn more when you listen.”

What is the biggest challenge you have — or you see in the industry — with respect to plan sponsors?

“Education; ensuring we know what’s new and about the hot, exotic products including how they fit into our goals.”

What does it take to be a trustee for a public fund?  (Many AIMSE members may be invited to do so one day.)

“Having a good investment background.  We have had two active managers serve on boards I’ve been associated with.  They have to be careful to stay strategic; they need to remember to question the style vs. the manager and to make strategic investment decisions from 30,000 feet.”

What should someone watch out for who may be invited to serve as a trustee one day?  Why would you recommend they do it/not do it?

“Conflicts of interest; make sure they remain independent.  As a fiduciary, you have to make all of your decisions solely in the interest of plan participants; remind yourself of this often.

(Serving as a trustee) is a great experience that often benefits the fund, the individuals and the companies they work for.  It gives you great perspective, and the fund gets some expertise that they may not have had before.  It’s usually a very valuable experience for the fund and the person.”

How do relationships with investment managers make your job easier?

“I advise our board and staff to treat them like white lab mice; don’t get too attached because eventually you have to kill them.  But it’s not personal.  I have hired and fired one manager four times over my career. “

What’s the most important thing you have learned over the years of being a public fund trustee?

“After 30 years, I’ve learned that you have to be fair and honest in all of your dealings on both sides of the equation.  This will take care of most of your problems.  It’s simple but true.  Just do the right thing.”

M. Steve Yoakum has served as Executive Director of the Public School Retirement System of Missouri (PSRS) and the Public Education Employee Retirement System of Missouri (PEERS) since June 1, 2001. 

Prior to returning to PSRS/PEERS, Mr. Yoakum was the chief operating officer and managing partner of Rockwood Capital Advisors LLC, a fixed income investment advisory firm located in St. Louis, which he co-founded in 1997. 

Prior to joining Rockwood, Mr. Yoakum served as chief executive officer for Missouri’s two largest retirement systems, serving as Executive Director of the Public School Retirement System of Missouri (PSRS) from 1994 to 1997 and Executive Director of the Missouri State Employees’ Retirement System (MOSERS) from 1987 through 1994. 

In addition, from 1985-87, Mr. Yoakum served as the Executive Director of Missouri’s public pension review board, the Joint Committee on Public Employee Retirement and as assistant director of the Missouri Local Government Employees Retirement System (LAGERS) from 1978-85.  In addition to his operations experience, Mr. Yoakum also served as a trustee and member of the investment committee of the Columbia, MO Police Retirement Board.

Mr. Yoakum, born in Cairo, Illinois, is a graduate of the University of Missouri school of business and public administration.  He is active in numerous professional associations including the National Association of State Retirement Administrators, serving as president in 2006-07, National Conference on Teacher Retirement, the Public Pension Coordinating Council, The Committee to Preserve Retirement Security, the Government Finance Officers Association and is a frequent speaker at industry meetings. 

Mr. Yoakum is married and lives in Columbia, Missouri.  His wife, Cathy, has been an elementary teacher in Missouri’s public schools since 1975.  Steve & Cathy have 3 children; Julie, Jeff, and Michael.

AIMSE 30th Annual Marketing and Sales Conference
Minard Wins 8th Annual Lothrop Award

Industry veteran and former AIMSE president Frank P.L. Minard of XT Capital Partners received the 2007 AIMSE Richard A. Lothrop Award at the 30th Anniversary AIMSE Investment Management Marketing & Sales Conference in Scottsdale, Arizona.

AIMSE presents this prestigious award each year to an exemplary individual as recognized by his or her peers. This award is named in honor of Richard A. Lothrop, an AIMSE Past President, and a pioneer and innovator in the investment management marketing and sales industry. Richard A. Lothrop is recognized as the founder of AIMSE. The following is excerpted from

Minard’s comments –the full text of his acceptance speech can be found at www.AIMSE.org.

“I truly want to thank AIMSE, the AIMSE Board, and especially the AIMSE members who were obviously very supportive of me as the 2007 recipient of the Richard A. Lothrop Award on this very special occasion of AIMSE’s 30th Anniversary…

For 30 years, AIMSE has succeeded in providing a framework where people with common goals and objectives have been able to come together and collaborate for the betterment of the individual, for the aggrandizement of the organization for whom they work and for an industry that recognizes and rewards the true meaning of relationships.

For it is this spirit of relationship building and nurturing, both professional and personal, that has made AIMSE what it is today and that has made Investment Management such an incredible industry to be a part of. Friendships and meaningful relationships have clearly helped me every step of the way. Sometimes these relationships develop by pure luck, right place/right time, but most often they develop and flourish because people want them, they need them, and work hard to nurture them…

The purpose of accentuating, if not dwelling on this quality of relationship development and nourishment, is that our industry is at a very important stage in its

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development and matriculation to that next incarnation whatever that will be over the next 5 years. Indeed, I believe we are at a critical crossroads. The number of investment management firms is growing exponentially especially in the non-traditional or alternative area. Not just hedge funds which we all read about every day, ad nauseum, but Private Equity, Venture Capital, Structured Products, Real Estate in multiple flavors, Liability Driven Investments brought about by the Pension Protection Act of 2006. Moreover the configuration of these firms is changing dramatically with the buy-outs, lift-outs and consolidations by domestic and non-US financial behemoths. There is so much product out there, being manufactured and distributed by more firms, in more types of vehicles, into more global target markets, through more channels and to more money owners than ever before.

How has this frenetic pace impacted the three stakeholders in our industry?  Plan sponsors are swamped with more investment opportunities than they can possibly analyze, frustrated by the untenable levels of unfunded-ness that stubbornly persist; and perplexed by their unrequited love and quest for real returns and the elusive alpha needed to bring assets and liabilities into equilibrium. Consultants remain generally overworked, relatively underpaid, or at least that’s what they want you to believe, and partially paralyzed into inertia by the overwhelming array of products for due diligence review. Regrettably, this reality has resulted in their being less accessible to money managers who need and rely on their support now more than ever before.


Money managers have been told and unfortunately have begun to believe that they are or will be uncompetitive if they only focus on their well-documented core competencies and exploit their historic skill sets. I ask you, without deliberately picking on anyone, does the world need another 130/30 strategy, another managed account platform, another fund of funds?

Where is this leading us? Regrettably, all three stakeholders in our industry appear to be too busy to develop new relationships, to maintain old ones or to engage in spontaneous, informal conversations and meetings that used to be the norm.

My point is simple; this frenetic pace could have a debilitating, deleterious impact on the very quality that made this industry great. If you couple this reality with the extraordinarily high utilization of technological “advances” in communications that were designed to optimize work flow efficiency, we see a confluence of two forces that do not bode well for the continuation of the glue that has made this industry great…

We all have a lot to lose if we succumb to the temptations of synthetic communications which is an easy trap in which one can become ensnared. So, let’s not lose sight of what made a gathering like this conference and like this celebration tonight a reality. It’s ours to preserve and rekindle, but it will take our commitment and keen sense of self-awareness to ensure that AIMSE, the industry and all of us in our own way keep alive the spirit that is embodied in the Richard A. Lothrop Award.”

Canadian Conference
15th Anniversary Conference
January 17-18, 2008
Royal York Hotel, Toronto

Special 15th Anniversary Reception January 17, 2007

Don’t miss the 15th Anniversary of the AIMSE Canadian Conference. Go “Back to the Future” with us as we celebrate the Canadian Conference
history while exploring the future of the investment management industry.

Back by popular demand is the “Meet the Plan Sponsor” Roundtable
John Formusa – Hydro One
Serge Pepin – Manulife
John Poos – Nortel
Terri Troy – Halifax Regional Municipality
Rick Headrick – Sun Life
Lisa Moen – Sask Health Employees Pension Plan
Jim Boyd – Simon Fraser University
Robbin Dichter – Great West Life

We will also be delivering some of the biggest names in the consulting
industry including:
Peter Muldowney – Mercer
Paul Malizia – Hewitt
Bill MacLean – Aon

Registration & Conference Agenda information now posted on www.AIMSE.org.


AIMSE/Wharton Institute
An Advanced Program for Investment Management Sales Executives

More than 20 outstanding sessions offered…

All targeted at your career needs; including…

International Investments — Dick Marston
Stock and Bond Perspective — Jeremy Siegel
Private Equity — Andrew Metrick
Marketing Segmentation —Barbara Kahn

…and more

Offered every other year only—The next program is January 6–11, 2008—miss this and you have to wait until 2010!
Availability is limited—get your application in now!

Go to www.AIMSE.org or call the AIMSE office at 703-234-4098.  Fax: 703-435-4390

A Big “Thank You” to the 30th Annual AIMSE Conference Exhibitors



Callan Associates Inc.

eVestment Alliance

Infinity Info Systems, Inc.

Informa Investment Solutions

Institutional Investor News



Mellon Analytical Solutions


Pensions & Investments

Standard & Poor's Money Market Directories

Wilshire Associates Inc.

AIMSE Elects 2007–2008 Officers and Directors
AIMSE membership elected the following new officers and directors for the 2007-2008 year at the 30th Annual Marketing & Sales Conference:
Thomas J. Barron, President, AIMSE
Harris Associates L.P.
Tom is director, marketing & client relations and joined the firm in 1998.
  Lawrence S. Pokora Vice President, AIMSE
Paulson & Company
Larry is Senior Vice President - Investor Relations at Paulson & Co.  His responsibilities include client service and marketing to a wide variety of relationships including Public Funds, Sub-Advisory and Consultant relations.
  Timothy McAvoy, Treasurer, AIMSE
Marvin & Palmer Associates, Inc.
As Principal - Client Service & Marketing, Tim is responsible for marketing investment products and serving as a client contact.
Board of Directors        
Niels Andersen
Altrinsic Global Advisors, LLC
Niels is responsible for client service and new business development at Altrinsic Global Advisors, LLC. Altrinsic manages global and non-US equity portfolios for clients in Australia, Canada, the U.S., and U.K./Europe.
  Christopher P. Austin, CFA
Standish Mellon Asset Management
Chris is the Director of Consultant Relations, responsible for developing and coordinating Standish Mellon's sales and service program for the consultant community.
  Carter Bailey
Franklin Templeton Institutional
Carter, Senior Vice President, head of U.S. Institutional Sales, is responsible for sales management for the United States as well as new business development and marketing in the Southeast region of the United States.
Curtis Baker
Capital Guardian Trust Company.
Curtis is a Vice President of Capital Guardian Trust Company with client relations and marketing responsibilities.


John T. Boyce
AIG Investments
John is Managing Director, Head of Institutional Sales.

  Gerard Branka
Fidelity Investments
Gerard is a Vice President and Relationship Manager at Fidelity Management Trust Company working with Taft Hartley and Public Pension Plans primarily in the Midwest.
Colleen Casey
Angelo, Gordon & Co.
Colleen joined Angelo, Gordon in 1998 to focus on institutional client development.

  John Galateria
T. Rowe Price Associates, Inc.
John is Vice President of T. Rowe Price Group, Inc. and T. Rowe Price Retirement Plan Services, Inc. He serves as Director of Sales with responsibility for all defined contribution plan business development.
  John Gee-Grant
John is Managing Director and co-head of the Global Consultant Relations Group. He is responsible for developing and maintaining relationships with consultants and institutional investors.
Michael Gillis
Greystone Managed Investments Inc.
As Senior Vice-President of business development, Michael is focused on providing prospective clients with information about Greystone's investment process and philosophy. Michael works closely with institutional clients and consultants across Canada, including pension funds, endowments, and charitable foundations.

  Cheryl King
  Christopher J. Krein
WisdomTree Investments, Inc.
Lori McEvoy
WisdomTree Investments, Inc.

Lori is Director of Consultant Relations at WisdomTree Investments, Inc., leading the company's institutional sales effort and promoting WisdomTree's proprietary investment methodology to the consultant and plan sponsor community.

  Rachel S.L. Minard
  Doreen Mochrie
Pershing Square Capital Management
Doreen is Executive Vice President, and head of the investor relations team at Pershing Square Capital Management.
Michael S. Reeves
Lapides Asset Management LLC
Michael heads up the marketing and client service for Greenwich, CT-based Lapides Asset Management.

  Anthony E. Wilkins, CFA
Northern Trust
Tony is head of consultant relations and is responsible for managing the firm's institutional investment consulting relationships.
  J. Kurt Wood, President Emeritus, AIMSE
DePrince, Race & Zollo, Inc.
Kurt serves as portfolio manager and international equity product specialist for the Orlando firm of DePrince, Race & Zollo, Inc.

BOARD 2007-2008:

Thomas J. Barron
Harris Associates L.P.

Vice President
Lawrence S. Pokora
Paulson & Company

Timothy McAvoy
Marvin & Palmer Associates, Inc.

President Emeritus
J. Kurt Wood
DePrince, Race & Zollo, Inc


Niels Andersen
Altrinsic Global Advisors, LLC

Christopher P. Austin, CFA
Standish Mellon Asset Management

Carter Bailey

Franklin Templeton Institutional

Curtis Baker
Capital Guardian Trust Company.

Jack Boyce
AIG Investments


Gerard Branka
Fidelity Investments

Colleen Casey
Angelo, Gordon & Co.
John Galateria
T. Rowe Price Associates, Inc.

John Gee-Grant

Michael Gillis
Greystone Managed Investments Inc.

Cheryl King

Christopher J. Krein
WisdomTree Investments, Inc.

Lori McEvoy

WisdomTree Investments, Inc.

Rachel S.L. Minard

Doreen Mochrie
Pershing Square Capital Management

Michael S. Reeves
Lapides Asset Management LLC

Anthony E. Wilkins, CFA
Northern Trust


12100 Sunset Hills Road, Suite 130
Reston, VA 20190
703-435-4390 FAX

Executive Director
Kathy Hoskins

Lauren Papageorge

Administrative Assistant
Laura Yarborough


Managing Editor
Tony Wilkins, CFA
Northern Trust

Jane N. Abitanta
Perceval Associates, Inc.
(212) 579-0207

Associate Editor
Susan B. Weiner