Stable Value Search Services
by Christopher B. Tobe, CFA, CAIA, Stable Value Consultants

We believe Stable Value Consultants is the most qualified firm to help plans with their search for a stable value provider. We recently completed a large $200mm+ corporate plan search in late 2010. The last 24 months have changed the industry, from manager dominated to wrap provider dominated, drastically changing the way we think searches should occur. One of the main goals in this search is a smooth transition that retains wrap coverage. My nearly 7 years as a leader for the world’s largest wrapper gives me a unique advantage in this new type of search.

SVC has developed a unique search process that not only has adapted to the new realities of the stable value market, but provides the fiduciary documentation that ERISA plans need in the era of the new DOL 408(b) disclosure rules. Starting with a stable value universe of over 30 firms we first match your plan with the stable value structure that best fits your needs. We have identified 7 structures ranging from old fashioned general account through diversified separately managed synthetics. Then using the ideal structure for your plan will identify the 7 to 12 plans that fit your ideal structure. We will then evaluate these 7 to 12 plans in a customized scoring system. We will then in consultation with the plan sponsor do phone interviews with the top 4-6 scoring managers. After this with the client we will make adjustments to the more subjective scores and pick 2-3 finalists to give presentations to the sponsor.

Many corporate plans have avoided formal searches in the past by having a 2nd favorite stable value manager in reserve to step up to replace a problem manager, however with the new DOL disclosure rule, we believe a more formalized search process is necessary.

From early 2009 we have worked with a total of 24 different stable value pools which had over $34 billion in Stable Value Assets including the Public DC plans at Texas and Maryland. While working nearly 7 years at Aegon ending late spring of 2008, I negotiated around 300 wrap contracts for well over 200 corporate plan sponsors, and 12 or more stable value managers. While the majority of contracts were negotiated with stable value managers, I directly worked with a number of corporate clients directly such as General Motors, DuPont, Johnson & Johnson, Halliburton, HCA & Sara Lee.

I think the wrap capacity shortage necessitates a new kind of search process. Most synthetic GIC or wrap contracts are by definition evergreen which means they can last indefinitely. This “grandfathering” of existing contracts is key and having the ability to negotiate around your current wraps, keeping them in place if it all possible even with a change of manager. The old wholesale packaged ways of doing business of changing managers, investment guidelines and even wrappers in stable value are all gone. Blindly issuing a RFP for a new stable value provider as a package could do far more harm than good if not properly implemented. With the wrap shortage and the current regulatory environment the power has dramatically shifted away from stable value managers and plans to the wrapper, and stable value search processes need to adjust to this new reality.

I believe the new DOL disclosure rules necessitate a more formalized search process. Plans are now more clearly liable to analyze the wrap contracts and stable value manager to a greater degree. This calls for a much more transparent process and looking under the hood at the entire stable value structure.

The recent 24 months has created vast differences between stable value managers. Some managers are in the wrapper dog house and have trouble getting new wraps, while many have had to drastically restructure their investment guidelines and even wrap structures to get covered. While we are reluctant to name names because of confidentiality issues, we will steer any clients away from these managers.

I believe we are most on top of the industry and have the freshest perspective. We continue to release topical white papers to our list of top plan sponsors. Our firm we believe is the only one doing detailed independent fiduciary oversight down to the contract level on stable value.  We have the ability and willingness to get into the details of Stable Value and communicate it to you in a way that you can make prudent decisions in your search process.