| Stable Value Overview |
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New York Life has been in the pension business since 1954 with the idea of providing a low-risk, stable return product for defined benefit plans. In 1981, Guaranteed Products issued its first Guaranteed Investment Contract (GIC) to a defined contribution plan and quickly became a leading player in the marketplace. As that market has evolved, "stable value" has become the generally accepted term to describe the underlying investment philosophy for these products.
What is stable value?
Stable value is an investment in which contractual terms provide for a guaranteed return of principal at a specified rate of interest. It seeks to limit, and in some cases eliminate, market volatility by providing a "book value" guarantee. This means that regardless of the performance of the underlying portfolio, the investment return will be that which has been agreed upon. In a fully guaranteed structure, usually a GIC, a set return is guaranteed (book value) and the issuer assumes all of the investment risk and owns all the securities in the underlying portfolio. Other structures, which allow some participation in the risk/return and asset ownership of the underlying portfolio, often referred to as Synthetic GICs, have become popular in recent years.
Stable value investing
Several factors are key to determining the appropriateness of a stable value investment. The soundness of the underlying portfolio is indicated by security selection that demonstrates an understanding of the risk/return characteristics and durations needed to meet the agreed upon goal. The guarantee must be backed by an entity with the financial strength to meet its obligations. Finally, the investment manager, as well, as the guarantee provider must have a track record that demonstrates their experience in the field.
Uses of stable value
Investors seeking stable returns and low volatility in both the qualified and non-qualified marketplace use stable value.
Defined contribution plans offer a stable value option to their participants which can be used as a foundation for balancing the risk in their investment portfolio.
Defined benefit plan managers often use stable value to offset their more risky investments.
In addition, institutional investors seeking to fund various endeavors, such as money market funds, often include stable value in their portfolio.
NYLIM Guaranteed Products offers a full range of stable value products.
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