Principal Financial Group 2015 Annual Report Download - page 13

112015 Annual Report
Pictured at left are an investment team from Principal Portfolio
Strategies. They are, left to right, Julia Lawler, Jessica Bush, Kelly
Grossman and Jake Anonson.
“What’s next” isn’t a new question for Principal.
In fact, we’re seeing industry-leading growth and
differentiating capabilities result from asking almost
a decade ago “what’s next” for portfolio design.
In 2008, in response to investor concerns reported in
401(k) surveys, Principal Global Investors introduced
a new fund design for retail investors—the Principal
Global Diversified Income Fund—that broke the mold
by throwing traditional “style box” portfolio design
out the window and focusing on something much
more impactful: outcomes.
The Global Diversified Income Fund was constructed
differently, with multiple asset classes that offered
multiple sources of returns, as well as lower overall
volatility.
It was managed differently as well, with multiple, spe-
cialist managers overseeing the investment strategy—
including managers outside Principal whose specialty
expertise filled an internal gap.
The fund was designed to target a specific risk profile
for more consistent returns, with dynamic, opportunis-
tic asset allocation and both passive and active man-
agement styles. There was nothing else like it on the
market at the time.
“By being more thoughtful about outcomes versus a
style-box approach, we were able to create an invest-
ment strategy with far more reliable risk manage-
ment,” said Jake Anonson, portfolio manager. “Our
clients’ risk isn’t about standard deviation. It’s about
failing to meet their investment goals.”
As it turned out, this outcome-based fund design rose
above the pack in addressing investors’ needs after
the economic crisis of 2008. Principal was ahead of
the game.
Two years later, a similar fund was introduced to meet
institutional investors’ needs: the Diversified Real
Asset Fund.
By offering growth-oriented assets with less variability,
the fund was able to provide a portfolio with remark-
able inflation sensitivity—plus a strong return profile.
To date, the Global Diversified Income Fund has grown
to more than $10.5 billion in assets under management,
and the Diversified Real Asset Fund has grown to
$5 billion. A third fund has been added to the family,
as well: the Global Multi-Strategy Portfolio, launched
in 2012 to add a hedge fund strategy to the mix.
“Despite an overwhelming business model that
emphasizes style-box portfolio construction, these
multi-asset, multi-manager strategies found real
footing across both the retail and the institutional
channels,” Anonson says. “This is an innovative
approach that came at a very opportune time.”
With this outcome-focused approach showing strong
results for both clients and shareholders, the team
plans to begin compartmentalizing client needs,
designing strategies around more specifically targeted
outcomes, as well as explore new strategies that com-
pete more directly within the traditional modeling
space—a return to the world where most of the team
got their start.
“Say you’ve been in a business for 20 years, and you’re
given the opportunity to build your practice all over
again today,” says Anonson. “Would you do it the same
way? Or would you build it in a more thoughtful and
consistent way? That’s exactly what this team has done.”