• Tue. Mar 21st, 2023

Principal Continues Concentrate on Asset Management, ‘Jet Fuel’ of the Small business


Mar 18, 2023

Dan Houston

Dan Houston is the head of a $17.five billion worldwide firm. He is also the type of CEO that, following an interview, casually hands out his organization card as if you could possibly get in touch with him later to talk about which revenue annuity to advocate to your aging cousin.

Houston’s relaxed manner could stem in element from Principal Monetary Group’s Des Moines, Iowa roots (although to be fair, he met PLANADVISER shortly following a organization trip in the Middle East and Asia). That demeanor could 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 substantial and compact.

“I consider the worst point 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 genuine problems are out there.”

What ever the purpose, 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 firm announced the benefits of a strategic evaluation in element due to a “cooperation agreement” from its biggest investor, the activist shareholder Elliott Investment Management. That evaluation resulted in the firm focusing on its “higher-development retirement, worldwide asset management and U.S. rewards protection firms,” according to a release at the time. The firm also stopped sales of its U.S. retail fixed annuities and customer life insurance coverage items.

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 not too long ago folded its international pension firms into asset management.

“We’re a huge asset manager about the globe in retirement plans that have practically nothing to do with recordkeeping,” Houston mentioned.

Rupiah Management

That most current move is element of a decade-extended shift in the so-known as emerging markets exactly where Principal operates, Houston explained.

One particular element of the transition was that lots of nations that had as soon as only permitted for nearby investments in retirement plans began to enable offshore choices. A second issue, Houston mentioned, was that participants —who had extended observed investing in compulsory retirement plans as some thing of a tax that could not return to them—began to see the retirement car additional like a 401(k) program in the U.S. that they could have later in life. Lastly, lots of nations began to provide wraparound items to the state-necessary applications, so participants could voluntarily make “top-up” investments.

“Now rapid forward to these days,” Houston mentioned. “In a compulsory technique it is one particular size fits all—it’s actually 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 worldwide asset manager.”

“And by the way,” he added, “we also present recordkeeping administration, compliance, testing, and participant services—but in these compulsory models, they appear a lot alike.”

In the U.S., As well

In the U.S., exactly where Principal does recordkeeping for more than 12 million participants, the story is somewhat equivalent in terms of offering asset management and investing solutions to retirement savers, according to Houston.

In the U.S., the business “fell into a bit of a view that the retirement organization is recordkeeping. But it is not actually,” he mentioned. “What is it actually about? It is about managing assets. That is the jet fuel for the firm.”

Principal does as considerably DC investment-only organization as it does complete recordkeeping, Houston noted. That involves offerings such as a target date choice, a mid-cap choice, a compact-cap choice, and a fixed revenue choice for certified retirement plans, and separately, investment sleeves on substantial platforms for co-mingled investments.

“Retirement also conveniently gets shrouded in ‘they’re the recordkeeper,’” Houston mentioned. “When we consider about retirement, we consider about how we present items that are acceptable for a certified retirement program, extended-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.”


Whilst Houston feels Principal is effectively poised for the retirement accumulation stage, he mentioned the firm is also focused along with the rest of the business on how to much better resolve for decumulation. In that case, he sees the industry continuing to move toward institutionally-priced, in-program annuities that present a assured paycheck in retirement.

He agreed that this in-program choice wants time prior to becoming place to mass use. But he noted that, these days, the investment choices in certified retirement plans are vetted by trustees in the program, as effectively as a third-celebration provider, and that general there is a rigorous method involved.

“If you consider about it, you will have to have that exact same sort of mechanism and method in location for in-program annuities,” he mentioned. “So I consider we’re going to finish up competing there with an institutionally placed item … it will take time, but that is exactly where I consider factors are going.”

Houston sees retirement revenue management continuing to evolve in coming years in element for the reason that throughout these client meetings he attends, “the subject of conversation about economic safety and retirement is constantly there,” he mentioned. “You cannot get away from it.”

At the moment, Principal oversees 45,000 client plans and has additional than 155,000 compact and medium sized organization relationships by means of other employer solutions. Houston says these customers, when becoming served by unique touchpoints, are all connected in some way to asset management.

“We’ve by no means been a monoline organization,” he mentioned. “There’s a lot of overlap of our compact-to-medium sized organization that has each retirement organizing and rewards. We have the biggest practice of ESOPs for the reason that 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 for the reason that each and every one particular of these firms wants asset management.”