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, soon after an interview, casually hands out his company card as if you may get in touch with him later to talk about which revenue annuity to advise to your aging cousin.
Houston’s relaxed manner may possibly stem in component from Principal Monetary Group’s Des Moines, Iowa roots (although to be fair, he met PLANADVISER shortly soon after a company trip in the Middle East and Asia). That demeanor may possibly also come from his individual 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 significant and compact.
“I believe 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 have to have to see what your experts are up against and what the genuine concerns are out there.”
What ever the explanation, Houston’s strategy 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 benefits of a strategic overview in component due to a “cooperation agreement” from its biggest investor, the activist shareholder Elliott Investment Management. That overview resulted in the organization focusing on its “higher-development retirement, international asset management and U.S. rewards 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.
Due to the fact 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 globe in retirement plans that have nothing at all to do with recordkeeping,” Houston mentioned.
That most current move is component of a decade-extended shift in the so-known as emerging markets exactly where Principal operates, Houston explained.
One particular component of the transition was that lots of nations that had after only permitted for nearby investments in retirement plans began to permit offshore choices. A second element, Houston mentioned, was that participants —who had extended noticed investing in compulsory retirement plans as some thing of a tax that may possibly not return to them—began to see the retirement car extra like a 401(k) strategy in the U.S. that they could have later in life. Lastly, lots of nations began to provide wraparound solutions to the state-essential applications, so participants could voluntarily make “top-up” investments.
“Now quick forward to now,” Houston mentioned. “In a compulsory program it is 1 size fits all—it’s definitely difficult 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 industry 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 deliver 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 comparable in terms of delivering asset management and investing solutions to retirement savers, according to Houston.
In the U.S., the market “fell into a bit of a view that the retirement company is recordkeeping. But it is not definitely,” he mentioned. “What is it definitely about? It is about managing assets. That is the jet fuel for the organization.”
Principal does as significantly DC investment-only company as it does complete recordkeeping, Houston noted. That contains offerings such as a target date alternative, a mid-cap alternative, a compact-cap alternative, and a fixed revenue alternative for certified retirement plans, and separately, investment sleeves on significant platforms for co-mingled investments.
“Retirement also conveniently gets shrouded in ‘they’re the recordkeeper,’” Houston mentioned. “When we believe about retirement, we believe about how we deliver solutions that are proper for a certified retirement strategy, extended-dated, that preserve capital. If you appear at our $600 billion-plus in assets beneath management, and $1.five billion beneath custody, they are tied to retirement in some form—most of it ERISA.”
Although Houston feels Principal is effectively poised for the retirement accumulation stage, he mentioned the organization is also focused along with the rest of the market on how to far better resolve for decumulation. In that case, he sees the industry continuing to move toward institutionally-priced, in-strategy annuities that deliver a assured paycheck in retirement.
He agreed that this in-strategy alternative wants time ahead of getting place to mass use. But he noted that, now, the investment choices in certified retirement plans are vetted by trustees in the strategy, as effectively as a third-celebration provider, and that general there is a rigorous method involved.
“If you believe about it, you will have to have that similar sort of mechanism and method in location for in-strategy annuities,” he mentioned. “So I believe we’re going to finish up competing there with an institutionally placed item … it will take time, but that is exactly where I believe factors are going.”
Houston sees retirement revenue management continuing to evolve in coming years in component mainly because for the duration of these client meetings he attends, “the subject of conversation about economic safety and retirement is generally there,” he mentioned. “You can not get away from it.”
Presently, Principal oversees 45,000 client plans and has extra than 155,000 compact and medium sized company relationships by way of other employer solutions. Houston says these clientele, even though getting served by various touchpoints, are all connected in some way to asset management.
“We’ve under no circumstances been a monoline company,” he mentioned. “There’s a lot of overlap of our compact-to-medium sized company that has each retirement organizing and rewards. We have the biggest practice of ESOPs mainly because we’re in the retirement company. We’re the biggest player in the nonqualified deferred compensation space, why? For the reason that we’re in the retirement company. We’re the biggest administrator of defined advantage plans, why? For the reason that we’re in the retirement company. And we’re in the asset management company mainly because just about every 1 of these companies wants asset management.”