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The role of white label funds in today’s defined contribution plans

Investments
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April 8, 2022

Using multi-manager white label investment funds in a defined contribution (DC) plan’s core lineup can potentially bring significant diversification and return advantages over conventional single-manager funds.

In recent years, you’ve likely seen your defined contribution plan evolve from a retirement planning vehicle to a lifetime savings account by your participants. In these rapidly changing times, it has never been more important to manage towards your key objectives and purpose: to help participants generate greater wealth over the long-term so they can meet their financial needs. White label funds can help you do this.

We believe that through a multi-manager, risk-optimized approach of white label funds, participants can gain access – in one investment vehicle – to a range of manager styles, investment processes and unique sources of alpha. This results in greater diversification than single-manager options available in most plans’ core menus. Further, sponsors can use this as a catalyst to streamline core menus and simplify the decision-making process for plan participants choosing their investments.

Historically, plan sponsors have been slow to add multi-manager white label funds, citing operational and governance complexity. In our view, the benefits for plan participants are well worth the additional effort. We believe that multi-manager white label funds provide a more efficient investment of participant assets, an integrated approach to risk allocation and a closer focus on asset allocation and manager selection. Sometimes there are lower fees. Further, expanding exposures within the core menu and Qualified Default Investment Alternative (QDIA) glidepath can potentially generate a significant long-term income differential for participants. Consequently, these factors combine to potentially generate better outcomes for DC plan participants.

Why should sponsors consider adding white label funds, or swapping them for existing core menu choices?

Multi-manager solutions can provide plan participants with a greater breadth of investment exposures with easier decisions and less risk of “error” in the process. This can result in greater wealth accumulation and income generation.

These funds are managed at a strategic level by a specialist overseeing a set of portfolios while gaining diversification across investment processes, styles, and alpha drivers. This helps participants access the benefits of specialist approaches while managing away the idiosyncratic risk of single manager funds and reducing the risk from owning multiple single manager funds in the same asset class. Cost and liquidity can be managed through the underlying funds selected and, in some cases, a white label approach may carry lower cost and better liquidity than available single-manager options.

A multi-manager white label fund investing in U.S. equities, for example, might engage four or five active, systematic, and passive managers across a mix of growth and value. A diversified fund might extend to asset classes not typically available or difficult to access in off-the-shelf funds (or inappropriate as a single-manager option), such as high yield, emerging market debt, securitized credit, direct real estate, infrastructure investments, or even private equity.

As plan sponsors and advisors monitor market developments, they’re able to adapt more easily. The mechanics of multi-manager white label funds allow for quickly changing underlying investment managers or allocations. For example, sponsors can deploy the best new opportunities or replace underperforming managers, avoiding waiting for committee meetings or broad participant communication announcements.

How WTW helps sponsors create value with multi-manager portfolios

Unconstrained idea generation

We can access the entire investment opportunity set, including motivating managers to create new products that better fulfill client needs. This allows us to help you build diverse portfolios across multiple specialist managers with attractive terms.

Risk management

We take a forward-looking perspective of risk through multiple “risk lenses,” including volatility, worst-case drawdown analytics, liquidity risk, and operational risk to help inform portfolio construction choices.

Dynamic portfolio management

Our approach is not set-it-and-forget-it. We continually monitor the market and regulatory environment to identify opportunities to enhance and elevate a plan’s investment structure from its current state.

Demonstrated track record

We have long-term track records demonstrating our ability to identify high-performing managers and to package them together into DC multi-manager portfolios.

Illustrative investment line-up

Illustrative investment line-up

*High potential for misuse as a standalone option but potentially appropriate as part of a multi-manager white label fund.
**Do participants really understand the difference between value, growth, and core?

Without white label With multi-manager white label
Target Date Fund Series Target Date Fund Series
Stable Value Stable Value
US Core Bond Fund Core Plus Bond Multi-Manager Fund
US High Yield Fund*
Non-US Bond Fund*
US Core Fixed Income Index US Core Fixed Income Index
Real Estate Fund Inflation Management Multi-Manager Fund
Infrastructure Fund*
TIPS Fund
US Large Cap Value Equity Fund** US Large Cap Equity Multi-Manager Fund
US Large Cap Core Equity Fund**
US Large Cap Growth Equity Fund**
US Large Cap Equity Index US Large Cap Equity Index
US Small/Mid Cap Value Equity Fund** US Small/Mid Cap Equity Multi-Manager Fund
US Small/Mid Cap Core Equity Fund**
US Small/Mid Cap Growth Equity Fund**
US Small/Mid Cap Equity Index US Small/Mid Cap Equity Index
International Developed Value Equity Fund** International Equity Multi-Manager Fund
International Developed Growth Equity Fund**
Emerging Market Equity Fund*
International Equity Index International Equity Index
Brokerage Window Brokerage Window

We recognize that white label funds aren’t going to be the right fit for every plan sponsor – but, for many, they offer a potential path forward to improve participant outcomes and may actually simplify your fiduciary & administrative oversight. Implementation of this approach need not be daunting, but if it is, we’d be happy to help you identify the right approach for your plan and to help you manage it.

Disclaimer

This document was prepared for general information purposes only and does not take into consideration individual circumstances. The information contained herein should not be considered a substitute for specific professional advice. In particular, its contents are not intended by Towers Watson Investment Services, Inc., and its parent, affiliates, and their respective directors, officers, and employees (“Willis Towers Watson”) to be construed as the provision of investment, legal, accounting, tax or other professional advice or recommendations of any kind, or to form the basis of any decision to do or to refrain from doing anything. The information included in this presentation is not based on the particular investment situation or requirements of any specific trust, plan, fiduciary, plan participant or beneficiary, endowment, or any other fund; any examples or illustrations used in this presentation are hypothetical. As such, this document should not be relied upon for investment or other financial decisions and no such decisions should be taken on the basis of its contents without seeking specific advice. Willis Towers Watson does not intend for anything in this document to constitute “investment advice” within the meaning of 29 C.F.R. § 2510.3-21 to any employee benefit plan subject to the Employee Retirement Income Security Act and/or section 4975 of the Internal Revenue Code.

This document is based on information available to Willis Towers Watson at the date of issue, and takes no account of subsequent developments. In addition, past performance is not indicative of future results. In producing this document Willis Towers Watson has relied upon the accuracy and completeness of certain data and information obtained from third parties. This document may not be reproduced or distributed to any other party, whether in whole or in part, without Willis Towers Watson’s prior written permission, except as may be required by law.

Views expressed by other Willis Towers Watson consultants or affiliates may differ from the information presented herein. Actual recommendations, investments or investment decisions made by Willis Towers Watson, whether for its own account or on behalf of others, may differ from those expressed herein.

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