TIAA-CREF:
A BRIEF HISTORY
A LOOK AHEAD
Scott Evans
Executive Vice President, Asset Management
TIAA-CREF
October, 2007
0
The TIAA-CREF Experience:
Background
•
1905: No higher education retirement system
•
TIAA founded in 1918 by Andrew Carnegie (U.S. Steel) as
a charitable trust for higher ed, etc.
― National
― Self-funded
― Market risk borne by individuals
― Pooled mortality risk, guaranteed participating annuities
•
CREF founded in 1952 as the first variable annuity
•
Today:
― ~$450 billion in assets, 15,000 institutional plans, 3.5 million
individual participants
1
TIAA-CREF INVESTMENT PHILOSOPHY:
To maximize customers’ savings
(rather than fees) by:
Emphasizing the
Importance of
asset allocation,
diversification, and
rebalancing
Seeking to add value through
selective active management
alongside a
full range of index funds
Offering pure,
fully-invested
low-cost exposure
Seeking to add value through
providing unique exposure to
more asset classes
2
TIAA-CREF INVESTMENT OPTIONS
•
1952-1990: TIAA and CREF Stock
― Mandatory Annuitization
•
1990s: Additional Investment Options
― Global Equities, Growth, Equity Index, Social Choice
― Money Market, Bond, Inflation-Linked Bond
― Real Estate
•
2002-2004: 20 Mutual Funds plus Lifecycle Funds
•
2005: Non-proprietary funds introduced
3
TIAA-CREF Life Annuity Income Stream Selection as a
Percentage of First Time Participants
100%
90%
Number of Participants
80%
70%
60%
50%
40%
30%
20%
10%
0%
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Year
4
Is There a Simple Design That Can Get Them to Want
What They Need?
1. Automatic enrollment
- Opt out option to apply to all “automatic” features
2. Automatic default to Lifecycle fund or Balanced fund
3. Compact set of transparent fund choices that provide
broad exposure to financial markets
4. Automatic rebalancing
5. Professional fund management that takes advantage of
long investment horizon and risk control
6. Low cost
7. Automatic annuitization
5
PENSION DESIGN FOR THE FUTURE
•
How close was TIAA-CREF to an ideal balance of
individual choice and institutional direction in the
20th Century?
•
In the U.S. an increasing realization that unlimited
choice produces sub-optimal outcomes
•
The Pendulum of Paternalism is Swinging Back
•
The popularity of Lifecycle funds shows that
simplicity wins – at least at the accumulation stage
•
A challenge will be to deliver similar simplicity for
the payout stage
6
TIAA-CREF:
A BRIEF HISTORY
A LOOK AHEAD
Scott Evans
Executive Vice President, Asset Management
TIAA-CREF
October, 2007
7