The global economic crisis has proved the value of TIAA-CREF’s fundamental model, says the company’s president and CEO.
TIAA-CREF, the financial services company that manages retirement portfolios for professionals in academia and other select fields, avoided the heavy losses other financial firms incurred during last fall’s financial meltdown. Thus far, the indicators reflect TIAA-CREF’s prudent, disciplined investment strategies. From Sept. 30 to Dec. 31, 2008, the height of the crisis, TIAA-CREF saw managed assets dip from $398 billion to $363 billion, an 8.8 percent decrease.
Currently, TIAA-CREF has 3.4 million clients and works with 15,000 institutions to deliver their products. Diverse recently spoke to TIAA-CREF President and CEO Roger Ferguson Jr. to discuss how the company is responding to the crisis and, more importantly, to its members, as the recession deepens and retirement plan preservation becomes the order of the day.
DI: You’ve been on the road a lot. What kinds of things are you hearing from your members, people who are participating in TIAACREF? FERGUSON: Well, what I’m hearing falls into two or three categories. First, a general desire for what I describe as a gut check. “Is it going to be OK?” The second thing we’re hearing is, “What should we be doing now? Should I change my plans?” And my advice generally is to stick with the plans you had before. And then, obviously, they’re always curious about how TIAA-CREF is doing. “How have you managed to avoid some of the pitfalls that others fell into?” That sort of [thing] really is the three categories of questions I get.
DI: So your core strategy at CREF has not changed based on this economic downturn?
FERGUSON: No, I would actually say this economic downturn has in some fundamental sense proven the value of the model, and our model has a couple of components. From the standpoint of the way we invest, we always invest with a long-term view. We invest thinking about broad diversification in our own portfolio, and that has proven to be helpful. The second way in which we invest is with a strong interaction between the asset management people and the folks who do risk management. There is a lot of tension occasionally. Obviously as you can imagine they see the world differently. But that model has proven to be true and that helps us avoid some of the problems. The other things about our model, the things our participants see have proven to be very useful: objective advice delivered often in person on 60 offices; that has proven to be a very valuable capability that we have. And reminding people they are saving to get to and through retirement, so keeping that long-term perspective. All of those bedrock truths we have been preaching and practicing for a long time, and I think, if anything, have been validated by the recent turmoil.
DI: When there were new entrants into the market a few years ago, the competition heated up and these, by and large, have gone away. What do you think accounts for that?
FERGUSON: Well, I think, as you have pointed out, there are relatively new entrants into our marketplace; they had a different view of what they were doing. Many of those who entered the marketplace were offering an asset-gathering machine, if you will, often in the form of different kinds of mutual funds. We were the only institution, TIAA-CREF, to provide a real retirement plan. I think one of the big differences this year is that if you are providing a retirement plan, you are thinking about your participants in terms of a 20-year, 30-year, 40-year, 50-year relationship, in some cases. If you’re in the asset-gathering mode, you are basically thinking about what assets can I get from the participant, this employee, today, and you are not really thinking through what is going to be good for them for the next 20, 30, 40 years. I think that’s an important distinction.
DI: We have heard quite a bit of conversation about deregulation now and the pros and cons of deregulation. When you focus just on your market, the higher education market, is there a need for a more paternalistic approach to helping higher education professionals to navigate this very complex world we live in now?
FERGUSON: I wouldn’t use the word ‘paternalistic.’ I think what people in the higher education world need is basically good, solid, objective advice, which is not paternalism, but basically working with them to understand what their risk tolerance is, what their plans and aspirations are, and then how they can achieve that. I think they need something that everybody needs, which is real diversification across many different asset classes. One of the things that we’ve learned is that if you have different strategies of equity investment, at the end of the day you still have equity. I would not say that true diversification is paternalism; I think it’s really working with the participant to help them achieve their goals in the long term.
