Gliding into retirement with Natixis Target Retirement Funds

JOHN KARVOLIS: What's the driving force behind target date's growing popularity among retirement plan participants? Are there innovative approaches that plan sponsors are using today that are changing the way target dates are used?

Today, I'm joined by CIO of Multi-Asset Solutions at Natixis Investment Managers, Chris Sharpe. He's also the Lead Portfolio Manager of the Natixis Retirement Funds. So, Chris, let's dive into the attractiveness of target date funds. We've seen $156 billion in inflows in 2023 alone, according to Morningstar. What's been really driving this?

CHRIS SHARPE: As you said, with those flows, $156 billion. There are a lot of savers, a lot of retirees behind those assets.

And it makes sense. With an ever increasing number of Americans retiring at age 65, as well as those saving prior to turning age 65, and accumulating in those defined contribution plans, they continue to use target date strategies. And at the end of 2023, there were over $3.5 trillion invested in target date strategies. So I think it's fair to say that they will continue to be a dominant savings vehicle for retirees and savers.

And it makes sense when you think about what's going on with the glide path. It really is a great hands-off solution for savers and retirees because it really sort of takes the operations, and the mechanics, and frankly, the emotions out of saving for retirement.

JOHN KARVOLIS: So the Natixis Target Retirement Strategy is a bit of a differentiator in the marketplace. Would you mind walking us through today what is the strategy's focus?

CHRIS SHARPE: Sure. So what are we trying to do with the glide path? We're trying to generate a successful retirement. And how we do that is we use the investment returns of the strategy, coupled with the participants savings and withdrawals, and then we add in Social Security.

And we're trying to maintain an income lifestyle for the retiree of about 85% income replacement. And that's generated across that glide path. And so it's taking age appropriate risk from age 20, to 40, to 50, to 65 and beyond, and taking age appropriate risk to maintain that savings and income goal.

You've been in this industry for a while – over 20 years now. And you were at one of the largest providers within the industry. Would you mind talking about what separates our target date fund strategy from other competitors in the market?

CHRIS SHARPE: I think as a foundation, we've made the decision to be a 'through age of retirement type' of strategy.

But I think beyond that, what's really sort of differentiated with our strategy is two really important pieces. First is the hybrid strategy that we've decided to make. We're not fully active. We're not fully passive. We believe a blend is the best of both worlds.

And so what we have is exposure to active managers and passive managers, and that really helps us form a more consistent return profile across the age spectrum. And that's our goal, is to smooth that investment return profile.

The second big thing is I think really unique to us, is our ability to tap into a variety of underlying investment managers within our affiliate structure Because they each have individual investment philosophies and investment processes, and that really diversifies, and differentiates, and sort of smooths the performance profile for our underlying participants.

JOHN KARVOLIS: The multi-manager structure that we have is so unique because it gives us so many great ideas from a research standpoint that are coming from different teams. And I think that really ties in to our team. I wanted you to see if you could walk through the diverse roles and expertise of the PMs on this Natixis Target Retirement Fund Strategy, and how they all perform their tasks on a daily basis.

CHRIS SHARPE: Yes. So at the top level, we've got three managers in addition to our underlying individual managers at the affiliates. So we have myself, Dan Price, and Marina Gross. And we all bring different lenses, and perspectives, and sort of roles to the strategy. And so it's nice to have that complementary nature.

And so what Dan Price does is his focus is really on manager research. And so he's having continuous conversations and analyzing the underlying managers, both from a qualitative perspective, a process perspective, and a quantitative perspective.

And then Marina's role, she brings years of asset class construction, asset class expertise, portfolio construction to the table. And so her sort of investment oversight reaches a lot of different angles of the strategy.

And then myself, I've managed fixed income strategies, equity strategies, and then predominantly multi-asset class strategies. And so I oversee the strategy from soup to nuts, if you will. And so the day-to-day mechanical, as well as the intermediate and longer-term components of the strategy.

JOHN KARVOLIS: Chris, do you mind expanding on the process that you're utilizing on deciding what the asset classes should be from a sizing standpoint, how you're constructing the asset allocation within the strategy?

CHRIS SHARPE: What we do is we look at the equity allocation. And we take pretty close to global market cap weighted exposure to make sure our investors are exposed to all the different pockets of the globe and the spaces of the equity space. And then we complement that in the fixed income space. So it's equity and non-equity, and the non-equity is fixed income.

And so the fixed income is really sort of a ballast to steady the portfolios when we have higher equity allocation, and then really stabilize it as we go closer to retirement through retirement where people are starting to take withdrawals. And so it's really a balance of both that equity and non-equity or fixed income.

JOHN KARVOLIS: Finally, Chris, you recently lowered the fees across all vintages in the strategy. Would you mind highlighting why that is?

CHRIS SHARPE: So as we discussed, we're a hybrid strategy. We have active managers, and we're trying to beat our benchmark. But embedded in that is we're trying to always evaluate fees. And so in July of 2024, we actually lowered the fees and the expense ratios for the funds by 6 basis points across the vintages. And so we go from 44 basis points to 49 basis points, depending upon each individual fund.

And we believe that's important. We don't seek to be the lowest. What we're trying to do is really have the best risk-adjusted net-of-fee performance. And that's ultimately what's most important for our shareholders, is getting the performance net of fees that helps them drive a successful retirement.

And so we think that that, coupled with the performance since inception of the funds, these offerings and hands-off solution are really sort of a very good offering for sponsors and their participants.