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Can Stable Value Find a Home in Europe?

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Amid all the things the U.S. exports to other parts of the world—movies, fast food, soda pop, grain, iPhones … the list goes on and on—stable value funds are conspicuously (to the stable value industry, at least) missing.

Robert Whiteford thinks there’s an opportunity to change that.

A longtime member of the stable value industry, including a 14-year stint with Bank of America Merrill Lynch—Whiteford has been working as an independent pension consultant for the past seven years. For the past few years, he’s been talking with regulators and financial services firms in Europe about introducing stable value funds to the retirement plan market there, with a special focus on the U.K.

“We edged pretty close, but fell a little bit short in the end,” Whiteford said of those efforts during a presentation at the SVIA 2018 Fall Forum in Washington.

Still, Whiteford has hardly given up on the idea. He argues not only that the stable value industry, as a mature business, needs more outlets, but also that it has a proven product that has done a lot of good for retirement plan participants in the U.S. and could do the same for those in Europe. Investors there could find it “a better package of risk and return than they have right now.”

The European marketplace should be receptive to a stable value product, too, Whiteford said. On balance, Europeans are good savers. And in the U.K., the second-biggest pension market in the world, there already exists a defined contribution plan framework which, while younger and smaller than the one in the U.S., is otherwise very similar—and grew 17 percent last year. In fact, Whiteford said, about 90 percent of private sector workers in the U.K. now participate in a defined contribution plan. About 85 percent of the time they’re invested in their plan’s default investment option, which is usually a target-date or target-risk fund.

Beyond the challenge of figuring out how to fit into or supplement target-date funds, Whiteford said breaking into the U.K. market would require learning to compete with “With-Profits” investments, which he described as an annuity-like product that provides downside protection with a share in upside opportunity. Their presence could actually present both a challenge and opportunity, Whiteford said, explaining that a number of With-Profits funds failed during the 2008 financial crisis, leaving some U.K. investors wary of them. But, he said, stable value funds are more transparent, and unlike With-Profits funds feature crediting rates known in advance. Accordingly, investors might see stable value as something similar to, but better than, the “With-Profits” investments they already know.

Whiteford also noted that the U.K. government in the past few years has indicated an interest in having a guaranteed product for its retirement plan market, and he said stable value funds could fill that role assuming the all-in costs were acceptable (a hurdle he thinks is manageable).

Beyond those issues, Whiteford cautioned that bringing stable value to the U.K. market will require close coordination with a wide range of players, including not only asset managers and wrap issuers but also regulators, auditors, retirement plan sponsors, plan consultants and plan advisors. And, he conceded, there’s no guarantee that any attempt to do all that will work. But, he said, “I think there’s a very high chance it will.”