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

Dan Houston

Dan Houston is the head of a $17.5 billion worldwide firm. He is also the kind of CEO that, quickly soon after an interview, casually hands out his corporation card as if you might possibly get in touch with him later to go more than which income annuity to advocate to your aging cousin.

Houston’s relaxed manner could stem in element from Principal Monetary Group’s Des Moines, Iowa roots (even though to be fair, he met PLANADVISER shortly quickly soon after a corporation trip in the Middle East and Asia). That demeanor could also come from his person history of joining Principal in 1984 as an insurance coverage coverage sales representative. Or, it could be Houston’s practice of joining his teams for client meetings, every single considerable and smaller sized.

“I think the worst problem 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 pointed out. “You have to have to see what your pros are up against and what the correct complications are out there.”

What ever the objective, Houston’s approach has kept him at the helm as Principal has taken on a dogged push in existing years to concentrate on three core pillars: asset management, group insurance coverage coverage, and retirement investing options.

In June 2021, the firm announced the final outcomes of a strategic critique in element due to a “cooperation agreement” from its largest investor, the activist shareholder Elliott Investment Management. That critique resulted in the firm focusing on its “higher-improvement retirement, worldwide asset management and U.S. added rewards protection organizations,” according to a release at the time. The firm also stopped sales of its U.S. retail fixed annuities and client life insurance coverage coverage options.

Since then, Principal has unloaded some of that life insurance coverage coverage business—parts of which Houston had cut down his teeth on nearly forty years ago—rebranded its asset management arm with an announcement on the Nasdaq stock exchange, and most not as well extended ago folded its international pension organizations into asset management.

“We’re a enormous asset manager about the globe in retirement plans that have virtually nothing at all to do with recordkeeping,” Houston pointed out.

Rupiah Management

That most existing move is element of a decade-lengthy shift in the so-identified as emerging markets precisely exactly where Principal operates, Houston explained.

One particular specific element of the transition was that fairly a handful of nations that had as quickly as only permitted for neighborhood investments in retirement plans started to let offshore options. A second element, Houston pointed out, was that participants —who had lengthy observed investing in compulsory retirement plans as some issue of a tax that could not return to them—began to see the retirement automobile additional like a 401(k) approach in the U.S. that they could have later in life. Eventually, fairly a handful of nations started to provide wraparound options to the state-vital applications, so participants could voluntarily make “top-up” investments.

“Now rapidly forward to proper now,” Houston pointed out. “In a compulsory method it is 1 specific size fits all—it’s definitely challenging to differentiate oneself. So precisely exactly where does the differentiation come from? Asset management.”

Houston pointed out the international asset management shift announced this February is “all about framing it in a way that when we go to marketplace in Chile, Mexico, Brazil, Hong Kong, Malaysia, Thailand, Indonesia … it is coming with the full force of here’s a worldwide asset manager.”

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

In the U.S., As effectively

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

In the U.S., the sector “fell into a bit of a view that the retirement corporation is recordkeeping. But it is not definitely,” he pointed out. “What is it definitely about? It is about managing assets. That is the jet fuel for the firm.”

Principal does as a terrific deal DC investment-only corporation as it does full recordkeeping, Houston noted. That incorporates offerings such as a target date option, a mid-cap option, a smaller sized-cap option, and a fixed income option for certified retirement plans, and separately, investment sleeves on considerable platforms for co-mingled investments.

“Retirement as effectively conveniently gets shrouded in ‘they’re the recordkeeper,’” Houston pointed out. “When we think about retirement, we think about how we offer you options that are appropriate for a certified retirement approach, lengthy-dated, that preserve capital. If you seem at our $600 billion-plus in assets under management, and $1.5 billion under custody, they are tied to retirement in some form—most of it ERISA.”

Decumulation

When Houston feels Principal is nicely poised for the retirement accumulation stage, he pointed out the firm is also focused along with the rest of the sector on how to superior resolve for decumulation. In that case, he sees the marketplace continuing to move toward institutionally-priced, in-approach annuities that offer you a assured paycheck in retirement.

He agreed that this in-approach option demands time just prior to becoming spot to mass use. But he noted that, proper now, the investment options in certified retirement plans are vetted by trustees in the approach, as nicely as a third-celebration provider, and that all round there is a rigorous course of action involved.

“If you think about it, you will have to have that precise exact same sort of mechanism and course of action in spot for in-approach annuities,” he pointed out. “So I think we’re going to finish up competing there with an institutionally placed resolution … it will take time, but that is precisely exactly where I think points are going.”

Houston sees retirement income management continuing to evolve in coming years in element primarily mainly because all through these client meetings he attends, “the topic of conversation about monetary security and retirement is typically there,” he pointed out. “You can’t get away from it.”

At present, Principal oversees 45,000 client plans and has additional than 155,000 smaller sized and medium sized corporation relationships through other employer options. Houston says these clientele, while becoming served by distinct touchpoints, are all connected in some way to asset management.

“We’ve by no means ever been a monoline corporation,” he pointed out. “There’s a lot of overlap of our smaller sized-to-medium sized corporation that has every single retirement arranging and added rewards. We have the largest practice of ESOPs primarily mainly because we’re in the retirement corporation. We’re the largest player in the nonqualified deferred compensation space, why? For the explanation that we’re in the retirement corporation. We’re the largest administrator of defined benefit plans, why? For the explanation that we’re in the retirement corporation. And we’re in the asset management corporation primarily mainly because each single 1 specific of these organizations demands asset management.”