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Aon Retirement and Investment Blog

Reassessing the Opportunity in Distressed Debt

2009 and 2010 provided distressed debt managers with ample investment choices, but post financial crisis, the default rate has dropped significantly.  While a relatively limited distressed opportunity set argues for more tempered return expectations, several factors unique to this cycle--such as an uneven economic recovery and continued bank deleveraging in Europe--continue to present compelling opportunities. 

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Our Global Investment Beliefs

The following succinctly presents Aon Hewitt’s investment beliefs.

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Treating All Participants Fairly: Revenue Sharing Policy Considerations

A mutual fund’s expense ratio is stated as a percentage of assets under investment and is netted from the fund’s performance, or Net Asset Value (“NAV”). Therefore, a defined contribution plan participant does not directly see the impact of revenue sharing on a fund’s performance. Recently, a number of legal cases have made it clear that fiduciaries responsible for the selection of investment options or for monitoring the reasonableness of fees must exercise greater care in their oversight of revenue sharing arrangements.

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A More Accurate Global Equity Benchmark

HEK’s preferred benchmark for global equity has historically been the MSCI ACWI IMI (Net). We now believe the MSCI ACWI IMI with USA (Gross) to be a more accurate benchmark for non-taxable, US-based, investors. The key difference between the two indices is the tax treatment of dividend income on the US portion of the benchmark.

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Lump-Sum Windows: A Strategy to De-Risk Pension Plans

Providing a guaranteed retirement benefit to employees through a defined benefit pension plan can be financially risky for employers. As investments change in value, interest rates fluctuate, new mortality tables are introduced, and Pension Benefit Guaranty Corporation (PBGC) premiums increase, a plan’s funded status can become quite volatile. One strategy many employers use to mitigate these financial risks is to amend the pension plan to offer terminated, vested participants an immediate lump sum cash payment through an interim or “window” program.

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Global Invested Capital Market

The concept of a world market portfolio features prominently in many financial theories and models and serves as an important foundation of our asset allocation work for our clients. The world market portfolio is the collection of all assets available to investors in proportion to their relative market value.

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Investing without Regard to Benchmarks

Benchmarks have long served several critical purposes in investing, such as providing guidance on how portfolios should be managed and serving as a hurdle for measuring performance.  However, many investment managers and strategies eschew benchmarks, asserting that they inhibit good portfolio management.

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High Frequency Trading and Your Portfolio

In existence since 1999, HFT utilizes technology to make quick trading decisions, often within milliseconds. Estimated at 50% of all equity transaction volumes in the US, some believe that this trading strategy provides a great deal of benefit to overall market structure in terms of increased liquidity and tighter bid/ask spreads.

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A Primer on Custom Target Date Funds

Custom target date funds are a topic that many defined contribution plan sponsors have been asking us about.  The HEK Blog did a short interview with Scott Fisher, who heads our custom target date fund team, to expand on some of the questions that he hears from clients and the things that he observes in his conversations with them.

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Five Trends to Watch in Public Pension Fund Governance

The investments of public pension fund assets are handled by entities with a variety of governance structures. According to the Government Accountability Office (GAO) the U.S, has over 3,400 public retirement systems covering over 27 million members and beneficiaries. They range in assets from a few million dollars to over $300 billion. For the most part, these systems have defined benefit plans; however, some have defined contribution plans, cash balance plans, hybrids, or multiple plans. One thing these governmental plans all have in common is their legal status as tax-exempt trusts.

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