Investment Disclosure and Important Notices

 

References to Mercer shall be construed to include Mercer LLC and/or its associated companies.

 

© 2020 Mercer LLC. All rights reserved.

 

This contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity without Mercer's prior written permission.

 

Mercer does not provide tax or legal advice. You should contact your tax advisor, accountant and/or attorney before making any decisions with tax or legal implications.

 

This does not constitute an offer to purchase or sell any securities.

 

The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed.

 

For Mercer’s conflict of interest disclosures, contact your Mercer representative or see http://www.mercer.com/conflictsofinterest.

 

This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances.  Mercer provides recommendations based on the particular client's circumstances, investment objectives and needs.  As such, investment results will vary and actual results may differ materially.

 

Information contained herein may have been obtained from a range of third party sources. While the information is believed to be reliable, Mercer has not sought to verify it independently. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential, or incidental damages) for any error, omission or inaccuracy in the data supplied by any third party.

 

Investment management and advisory services for U.S. clients are provided by Mercer Investments LLC (Mercer Investments). Mercer Investments is a federally registered investment adviser under the Investment Advisers Act of 1940, as amended. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Mercer Investments’ Form ADV Part 2A & 2B can be obtained by written request directed to:  Compliance Department, Mercer Investments, 99 High Street, Boston, MA 02110.

 

Mercer Funded Status Performance

 

This analysis includes plans for whom Mercer built and managed a customized Liability Driven Investments (LDI) program. The analysis covered 5 plans for 2008, 9 plans for 2009, 9 plans for 2010, 16 plans for 2011, 23 plans for 2012, 27 plans for 2013, 37 plans for 2014, 47 plans for 2015, 59 plans for 2016, 64 plans for 2017, 65 plans for 2018, and 62 plans for 2019. The composition of the group changed each year to reflect the number of plans that were invested with Mercer in custom LDI solutions at the beginning and end of the year.  Only plans with 12/31 fiscal year ends were included to ensure consistency in reporting.

 

For year-to-date estimates, funded status performance for Mercer clients includes 96 US Defined Benefit LDI clients that are monitored daily on the Mercer Dynamic De-Risking platform. Year-to-date results represent the average change in funded status from 12/31/2019 to 3/31/2020 for those clients. 

 

S&P1500 Funded Status Performance

 

Mercer estimates the aggregate combined funded status position of plans operated by S&P 1500 companies on a monthly basis. For S&P 1500 companies that do not have a December 31 fiscal year end, this is based on projections of their reported financial statements adjusted from each company’s financial year end to December 31 in line with financial indices. This includes US domestic qualified and non-qualified plans and all non-domestic plans.

 

Source of Financial Statement Data:10-K reports filed by the companies in the S&P 1500, as provided by S&P Capital IQ, a Standard & Poor’s business.

 

The Mercer Pension Discount Yield Curve is used to estimate the change in discount rates for adjusting aggregate liabilities. Please see the following link for further information: https://www.mercer.us/our-thinking/wealth/mercer-pension-discount-yield-curve-and-index-rates-in-us.html.

 

Funded status performance is presented for illustration purposes only. There is no assurance that LDI investment objectives will be achieved.  All investments experience gain or loss.  Funded status performance data shown in this presentation represents past performance, which is no guarantee of future results. Additionally, funded status performance is unable to take into account plan contributions that may materially impact funded status as well as possible accounting techniques or methods that may evolve over time in calculating funded status.  Specific investments and asset allocations vary across the Mercer LDI clients and S&P 1500 plans, due to factors such as, timing of investment decisions, investment objectives, risk tolerance, funded status levels, and perception of investment opportunities. Actual funded status performance of S&P 1500 plans may significantly differ from the estimated data shown herein. The estimated S&P 1500 funded status is used to illustrate broad market conditions for the relevant time periods and, depending upon the portfolio strategy, allocation, and a variety of other factors, should only be used as a broad based indicator of general LDI performance. Asset allocations of the LDI clients for the time periods indicated may have varied greatly from the average S&P 1500 asset allocations represented over the same time period.  Mercer’s LDI funded status performance for each individual LDI client is available upon request.

 

Value Added Disclosures

 

Measurement of value added through manager research recommendations

December 31, 2019

Mercer’s Investment business has developed and implemented a methodology for measuring the value added through their manager research recommendations. This methodology and the results of the analysis, for periods to December 31, 2019 are presented below.

 

Measurement methodology

 

For most investment strategies that we research, we arrive at a rating on a four tier scale in which the possible ratings are A, B+, B and C. When we formulate short lists of candidates for clients to consider in manager searches, these are generally drawn from the list of strategies rated A within the relevant product category. We first began maintaining formal ratings on this basis in 1995, replacing less formal methods in place, and have extended this to cover all product categories that we actively research, over the period since.

 

Our methodology for measuring the performance of our ratings entails calculating the average performance of the strategies that we rated A within each product category each quarter, based on the ratings as they stood at the end of the previous quarter. Therefore, there is no element of hindsight in the analysis. We then compound these quarterly results together to calculate performance over longer periods. Finally, we subtract the return for an appropriate and widely accepted benchmark index for the product category concerned to calculate value added. We also calculate a risk-adjusted measure of the value added known as the information ratio.

 

In essence, this methodology tracks the performance of a hypothetical Mercer client that is assumed to split its money evenly between all of the strategies rated A by Mercer within the product category concerned. This hypothetical client is assumed to have reviewed its manager line-up at the end of each quarter, based on the Mercer ratings as they stood at that point in time. A typical client would not invest in all strategies in all of the categories, as some may not be relevant to a particular client for a variety of reasons. Therefore, the actual added value of strategies selected by a client would vary from the results depicted here. The average value added for each product category is detailed in this report.

 

Three types of strategy are excluded from the analysis. Firstly, we exclude strategies that are sub-advised by other investment managers, to avoid double-counting. Secondly, where a manager offers two variants of what is essentially just one strategy, we only include one of these in the analysis (we used to use the one with the longer track record but in 2011 we assigned the decision on which track record to use to the researcher responsible for the strategy), once again to avoid double counting. Thirdly, if a strategy’s track record relates to a benchmark that is materially different to the benchmark used in the analysis for the product category concerned, it will be excluded from the analysis to avoid distortions that could arise solely as a result of the non-standard benchmark.

 

Where a manager offers equity strategies in a typical long only format and a variant which includes the ability to short we only include the long-only version.

 

For some product categories, where the use of custom benchmarks is prevalent, there is no single widely accepted benchmark that can be used as a basis for this analysis. We therefore use a slightly different methodology for these categories. In these cases, we carry out the analysis by first calculating value added each quarter for each track record relative to its custom benchmark, then calculating the average of these value added figures each quarter, and then compounding the quarterly value added figures to calculate value added over longer periods.

 

We have carried out these calculations for most of the product categories where we both maintain ratings and for which we have reliable performance data (currently 69 categories), going back in each case to when we first had a reasonable spread of ratings for the product category concerned.

 

Some important caveats

 

All of the value added figures have been calculated by Mercer, but are based upon performance data provided to Mercer by the investment managers concerned. Mercer generally does not independently verify the performance information provided by investment managers.

 

The methodology described above does not allow for transaction costs that an investor would have incurred if it had actually changed its panel of investment managers every quarter in line with changes to the list of products rated A by Mercer within the product category concerned. In practice, the turnover of managers incurred by such an investor would have averaged about 15% per annum (the actual averages since inception for each product category are shown in the final section of the results). We have not attempted to estimate the transaction costs that would have been incurred as this would require assumptions on a number of factors, including the investor’s cash flow position and how the changes had been implemented.

 

All investment performance data used was reported gross of investment management fees and certain other expenses, such as custody and administration. All the value added figures are also quoted before deduction of such fees. The figures are however net of all transaction costs that the managers concerned have incurred within their investment portfolios. Performance shown assumes the reinvestment of dividends and capital gains distributions. A client’s return would be reduced by the advisory fees and any other expenses it may incur in the management of its account. Actual fees may vary depending on, among other things, the applicable fee schedule, portfolio size and/or investment management agreement. For example, if $100,000 were invested and experienced a 10% annual return compounded monthly for 10 years, its ending value, without giving effect to the deduction of advisory or investment management fees, would be $270,704 with annualized compounded return of 10.47%. If an advisory or investment management fee of 0.95% of the average market value of the account were deducted monthly for the 10-year period, the annualized compounded return would be 9.43% and the ending dollar value would be $246,355. Further information regarding investment advisory fees are described in our Form ADV, Part 2A.

 

As described above, the results of the analysis are based on performance data provided to Mercer by the investment managers concerned and other sources. While this information is believed to be reliable, no representations or warranties are made as to the accuracy of information presented, and no responsibility or liability, including for consequential or incidental damages, can be accepted for any error, omission or inaccuracy in this information.

 

We have endeavoured to obtain performance data for all investment products that have ever been rated A by Mercer for inclusion in the analysis, but in some cases this has not been possible. Where data could not be obtained, we have no option but to exclude the product from the analysis. We will continue to endeavour to obtain missing data for future updates of the analysis.

 

As always, past performance cannot be relied on as a guide to future performance. Whilst Mercer commits considerable resources to manager research, in an effort to maximise the value added through our manager research recommendations, we do not provide any guarantees as to the future performance of the investment strategies that we recommend to our clients.