NEPC is one of the industry’s largest independent, full-service investment consulting firms, serving 347 clients with total assets over US$920 billion (as of 6/30/2016). The firm has thought-leadership and innovation at its core, and was one of the very first industry adopters of LDI solutions.

In line with its leading approach, NEPC adopted PFaroe in 2015, embracing its use for defined benefit (DB) pension plan clients that have a heightened focus on asset-liability risk management. PFaroe complements NEPC’s offering by enhancing the firm’s daily monitoring capabilities and allowing for more effective implementation of customized asset allocation glide path strategies.

Brian Roberts, Senior Consultant at NEPC, comments:

He adds:

NEPC’s usage centres on daily monitoring and asset-liability management (ALM) for DB plans. The benefits of PFaroe in this respect can be summed up in three words: accuracy, speed and efficiency.

Based on NEPC’s latest Defined Benefit Trends Survey, over 60% of respondents currently utilize some form of LDI. Of NEPC’s clients, over 70% have incorporated either LDI or a glide path approach as part of their investment strategy. As such, PFaroe’s ability to monitor clients’ funding positions on a daily basis can be beneficial to plans seeking to understand and potentially react faster – and with more confidence – to moves in the market.

NEPC has a number of triggers in place for its clients – mainly relating to funding level, although other variables such as interest rate movements or simple time-based triggers can be utilized as well. Once a trigger has been breached, PFaroe alerts NEPC and/or the client immediately – allowing the consultant to open a discussion with the client in question. While this may not always drive changes in asset allocation – especially for clients with a high proportion of illiquid assets – the conversation is valuable and educational to the client, often informing future decisions and strategies.

PFaroe also aids NEPC when conducting asset-liability and other forecasting studies, producing projections on a stochastic or deterministic basis, as well as analysing the impact of changing investment strategy and contributions, and comparing alternative options. Crucially, PFaroe provides a consistency in methodology. All data and assumptions are built into PFaroe and used across all elements of the analytics. This provides clients with confidence in the numbers and analysis.

Roberts says:

A recent asset liability study for a high-profile client was a case in point, with NEPC looking at ways in which the plan could maintain a reasonable rate of return while increasing its hedge ratio, using assets more efficiently to generate similar or better results. PFaroe illustrated the trade-off in an easy to understand form – through stochastic analysis – between a higher hedge ratio and the impact on returns, while also highlighting the impact from a contribution risk stand-point.

Mark Cintolo, Senior Research Consultant, adds:

Since signing with RiskFirst, NEPC has been methodical in its roll-out; selectively offering the analytics platform to existing clients and potential clients, especially those with glide-paths or those engaged in LDI. At the same time, NEPC has focussed on targeted internal training in order to get to a point where the firm has the right knowledge, processes and team in order to be able to on-board clients quickly and easily.

Roberts says:

Amanda Flemming, Senior Analyst, adds:

Designating a small team focused on the implementation and synchronization of the PFaroe platform with its existing monitoring and modelling capabilities has enabled NEPC to quickly and efficiently build up its expertise with the platform and offer a consistent level of training, onboarding and usage by clients.

As NEPC continues to expand its use of RiskFirst’s PFaroe platform across its current and future client base, including a variety of client types (Corporate, Healthcare, and Utilities among others), the super-user group provides clients and NEPC consultants with the necessary support to ensure a timely and coordinated implementation.