Peer grouping, mandate-level data, a VoC refresh and a chat with a long-time friend.
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Newsletter Edition: Spring 2024

Letter from our CEO

 A critical mass of relevant peers is foundational to insightful benchmarking. How does CEM design – and refresh – your peer group?  

 

Every year, we receive data from hundreds of institutional investors spanning more than 20 countries. The data spans investments and administration, starting at the top of organizations and cascading multiple levels. Many of our clients are international leaders in terms of both size and complexity; others are relatively smaller and simpler. The rub: we have a large inventory of options when building peer groups.  

 

The selection of strong peer groups is critical to quality benchmarking. Let me use oversight costs for U.S. corporate defined contribution plans as an example. In our database, costs have been two times greater for plans with less than USD 5 billion in AUM than for plans with more than USD 15 billion in AUM. A more relevant peer group leads to more relevant insights and, in turn, more successful actions.  

 

For clients new to CEM, peer grouping is an integral part of onboarding. We start by understanding the eventual use of the insights: is it for assessing total fund performance? Setting aspirational targets in a single asset class? Optimizing the cost of serving members? It is possible to have multiple frames for comparison. This is why many clients value a larger universe when examining performance and understand that a more focused group is required for cost comparisons. 

 

Cost peer groups, specifically, require the most attention when being established and annually revisited. We aim for a group between 15 and 25 peers of similar size (e.g. AUM, members) and in the relevant geography (e.g. either in-region or global). As we have mentioned before, size does matter.  

 

We also look for peers that have a stable track record of providing high quality data. This ensures consistency in year-over-year comparisons. The ability to curate these peer groups is one of the hallmarks of CEM Benchmarking.  

 

There are additional considerations that are unique to each of our subscriptions.  For example, for defined benefit peer groups, when benchmarking hedging portfolios, we consider plan status (e.g. open vs. closed), duration of liabilities, and current funding levels. For defined contribution clients, we generally consider corporate plans separate from public sector plans and take the average assets per member into account. 

 

Finally, we often create secondary peer groups for some of our clients. Here, we may only include plans in a specific industry or with similar operating models (e.g. more internalization). These groups are often built to answer higher order strategic questions or for broader discussions at industry forums.  

 

As we continue gathering data for calendar 2023, I would also point out: 

  • Increasingly DB clients are providing mandate level data. In 2022, we collected over 8,000 mandates worth of data and will be offering comparisons at this level in 2023.
  • In a similar vein, our DC clients are now increasingly having their data pre-populated by providing either Morningstar tickers or asking the recordkeepers to provide.
  • Our first Coffee Chat interview with a CEM client, Mark Feldhausen, the Budget and Performance Management Director at the Department of Retirement Systems (DRS). Mark kindly reflects on his 40 years at DRS and working with CEM.

    Thanks, as always, for reading.  

     

    Rashay

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    Rashay Jethalal, CEO

    Rashay@cembenchmarking.com

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