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TIAA-CREF: A BRIEF HISTORY A LOOK AHEAD

TIAA-CREF: A BRIEF HISTORY A LOOK AHEAD. Scott Evans Executive Vice President, Asset Management TIAA-CREF October, 2007. The TIAA-CREF Experience: Background. 1905: No higher education retirement system

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TIAA-CREF: A BRIEF HISTORY A LOOK AHEAD

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  1. TIAA-CREF: A BRIEF HISTORYA LOOK AHEAD Scott Evans Executive Vice President, Asset Management TIAA-CREF October, 2007

  2. 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

  3. 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

  4. 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

  5. Is There a Simple Design That Can Get Them to Want What They Need? • Automatic enrollment - Opt out option to apply to all “automatic” features • Automatic default to Lifecycle fund or Balanced fund • Compact set of transparent fund choices that provide broad exposure to financial markets • Automatic rebalancing • Professional fund management that takes advantage of long investment horizon and risk control • Low cost • Automatic annuitization

  6. 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

  7. TIAA-CREF: A BRIEF HISTORYA LOOK AHEAD Scott Evans Executive Vice President, Asset Management TIAA-CREF October, 2007

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