Principal Continues Concentrate on Asset Management, ‘Jet Fuel’ of the Enterprise
Dan Houston is the head of a $17.five billion international organization. He is also the type of CEO that, immediately after an interview, casually hands out his organization card as if you may well contact him later to go over which earnings annuity to advocate to your aging cousin.
Houston’s relaxed manner may perhaps stem in aspect from Principal Monetary Group’s Des Moines, Iowa roots (although to be fair, he met PLANADVISER shortly immediately after a organization trip in the Middle East and Asia). That demeanor may perhaps also come from his private history of joining Principal in 1984 as an insurance coverage sales representative. Or, it could be Houston’s practice of joining his teams for client meetings, each big and smaller.
“I assume the worst issue you could ever do as a CEO is be holed up in an workplace and not get out and get your chops busted from time-to-time,” Houston mentioned. “You want to see what your experts are up against and what the actual difficulties are out there.”
What ever the explanation, Houston’s method has kept him at the helm as Principal has taken on a dogged push in current years to concentrate on 3 core pillars: asset management, group insurance coverage, and retirement investing solutions.
In June 2021, the organization announced the final results of a strategic critique in aspect due to a “cooperation agreement” from its biggest investor, the activist shareholder Elliott Investment Management. That critique resulted in the organization focusing on its “higher-development retirement, international asset management and U.S. added benefits protection companies,” according to a release at the time. The firm also stopped sales of its U.S. retail fixed annuities and customer life insurance coverage solutions.
Given that then, Principal has unloaded some of that life insurance coverage business—parts of which Houston had reduce his teeth on almost forty years ago—rebranded its asset management arm with an announcement on the Nasdaq stock exchange, and most lately folded its international pension companies into asset management.
“We’re a significant asset manager about the planet in retirement plans that have absolutely nothing to do with recordkeeping,” Houston mentioned.
That most current move is aspect of a decade-lengthy shift in the so-referred to as emerging markets exactly where Principal operates, Houston explained.
A single aspect of the transition was that numerous nations that had as soon as only permitted for neighborhood investments in retirement plans began to enable offshore solutions. A second issue, Houston mentioned, was that participants —who had lengthy noticed investing in compulsory retirement plans as a thing of a tax that may perhaps not return to them—began to see the retirement automobile additional like a 401(k) program in the U.S. that they could have later in life. Lastly, numerous nations began to supply wraparound solutions to the state-needed applications, so participants could voluntarily make “top-up” investments.
“Now rapid forward to currently,” Houston mentioned. “In a compulsory program it is a single size fits all—it’s seriously challenging to differentiate your self. So exactly where does the differentiation come from? Asset management.”
Houston mentioned the international asset management shift announced this February is “all about framing it in a way that when we go to marketplace in Chile, Mexico, Brazil, Hong Kong, Malaysia, Thailand, Indonesia … it is coming with the complete force of here’s a international asset manager.”
“And by the way,” he added, “we also supply recordkeeping administration, compliance, testing, and participant services—but in these compulsory models, they appear a lot alike.”
In the U.S., Also
In the U.S., exactly where Principal does recordkeeping for more than 12 million participants, the story is somewhat related in terms of supplying asset management and investing solutions to retirement savers, according to Houston.
In the U.S., the sector “fell into a bit of a view that the retirement organization is recordkeeping. But it is not seriously,” he mentioned. “What is it seriously about? It is about managing assets. That is the jet fuel for the organization.”
Principal does as significantly DC investment-only organization as it does complete recordkeeping, Houston noted. That contains offerings such as a target date choice, a mid-cap choice, a smaller-cap choice, and a fixed earnings choice for certified retirement plans, and separately, investment sleeves on big platforms for co-mingled investments.
“Retirement also conveniently gets shrouded in ‘they’re the recordkeeper,’” Houston mentioned. “When we assume about retirement, we assume about how we supply solutions that are proper for a certified retirement program, lengthy-dated, that preserve capital. If you appear at our $600 billion-plus in assets below management, and $1.five billion below custody, they are tied to retirement in some form—most of it ERISA.”
Although Houston feels Principal is nicely poised for the retirement accumulation stage, he mentioned the organization is also focused along with the rest of the sector on how to improved resolve for decumulation. In that case, he sees the marketplace continuing to move toward institutionally-priced, in-program annuities that supply a assured paycheck in retirement.
He agreed that this in-program choice desires time ahead of becoming place to mass use. But he noted that, currently, the investment solutions in certified retirement plans are vetted by trustees in the program, as nicely as a third-celebration provider, and that general there is a rigorous course of action involved.
“If you assume about it, you will have to have that very same sort of mechanism and course of action in spot for in-program annuities,” he mentioned. “So I assume we’re going to finish up competing there with an institutionally placed item … it will take time, but that is exactly where I assume issues are going.”
Houston sees retirement earnings management continuing to evolve in coming years in aspect mainly because in the course of these client meetings he attends, “the subject of conversation about monetary safety and retirement is constantly there,” he mentioned. “You can not get away from it.”
At the moment, Principal oversees 45,000 client plans and has additional than 155,000 smaller and medium sized organization relationships via other employer solutions. Houston says these customers, whilst becoming served by distinct touchpoints, are all connected in some way to asset management.
“We’ve in no way been a monoline organization,” he mentioned. “There’s a lot of overlap of our smaller-to-medium sized organization that has each retirement preparing and added benefits. We have the biggest practice of ESOPs mainly because we’re in the retirement organization. We’re the biggest player in the nonqualified deferred compensation space, why? Due to the fact we’re in the retirement organization. We’re the biggest administrator of defined advantage plans, why? Due to the fact we’re in the retirement organization. And we’re in the asset management organization mainly because each and every a single of these companies desires asset management.”