Retirement Commission Special Meeting Materials (linked)

AX FIDUCIENT
Advisors
| FLASH Memo
Subject: PGIM Global Bond Underperformance and PM Addition
Previous Status: Maintain
Current Status: Watch
Effective Date: August 2022.
Overview
Prudential Global Investment Management (“PGIM”) announced, effective July 14, 2022, Gregory Peters, Co-
Chief Investment Officer (“CIO”), will be added to the Global Total Return strategy as a named portfolio
manager. The current team complexion for the global bonds’ suite is illustrated in the table below:
Fund Name Portfolio Managers Firm Experience Strategy Experience
Global Dynamic Bond Robert Tipp 31 yrs 19.8 yrs :
Global Total Return Matthew Angelucci 16.5 yrs 3.7 yrs
Global Total Return Hgd Brett Bailey 15 yrs 0.8 yrs
International Bond Gregory Peters Joined in 2014 Added 7/14/22
PGIM’s intent with the addition of Mr. Peters is to promote further dialogue and debate across the global multi-
sector team. Mr. Peters can also veto decisions as the most senior member of the team. This team addition comes
in wake of severe year-to-date (“YTD”) underperformance, dragging trailing periods lower for the Global Total
Return strategy, and is the only strategy that Mr. Peters will be added to.
As of 6/30/22
Bloomberg Global Aggregate TR USD 15.25 3.22 0.11
PGIM Global Total Return R6 _-22.009 | 5.90. 1.40
There are two main drivers of underperformance YTD, The first is security selection within emerging markets,
which accounts for -291 basis-points (“bps”) of underperformance. This is mainly due to security selection in
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the recipient, is confidential and may not be disseminated or distributed to any other person without the prior approval of Fiducient Advisors. Any
dissemination or distribution is strictly prohibited. Information has been obtained from a variety of sources believed to be reliable though not
independently verified. Any forecasts represent future expectations and actual returns, volatilities and correlations will differ from forecasts, This
report does not represent a specific investment recommendation. Please consult with your advisor, attorney and accountant, as appropriate,
regarding specific advice, Past performance does not indicate future performance and there is a possibility of a toss.
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Russia and Ukraine going against the strategy due to geopolitical conflict. The second driver is duration
positioning. Coming into the year, the portfolio was structurally long duration at 9.79 years versus the Bloomberg
Global Aggregate index at 7.45 years. As of 6/30/22, the portfolio had an active duration position of +0.31 years
relative to the index. Overall, duration positioning has cost the strategy -207bps or relative performance YTD.
Whenever strategies relatively underperform to large magnitudes, investment professional compensation is
important context. For portfolio managers on the strategy, variable compensation is based on annual trailing 3-
year performance relative to their alpha target of 250bps. PGIM estimates that variable compensation is 55-70%
of portfolio manager total compensation. Investment professionals at PGIM also receive a Long-Term Incentive
Plan (“LTIP”) that is paid out based on an AUM weighted average of all portfolio composites meeting their
individual alpha targets.
Recommendation
While investing with a long-term view is generally advisable, severe short-term underperformance should still be
evaluated carefully. Within the context of the severe relative underperformance of the Global Total Return
strategy, the addition of Greg Peters, CIO, gives us pause as it fundamentally changes the decision-making
process for the team amid compensation in jeopardy. Because compensation is earned by trailing 3-year relative
performance, underperformance YTD and in 2021 will be included in future trailing 3-year numbers. Further,
Mr. Peters’ seniority as CIO and intention of bringing more debate to the team may dilute the decision making of
portfolio manager Robert Tipp, who has been leading the strategy for nearly 20 years. Considering their
Russia/Ukraine positions are not able to be traded, and the relatively neutral current duration positioning, the
portfolio will likely need to add risk to participate in more upside when the market rallies. However, the dynamic
risk budget and ability to position the portfolio tactically are not a competitive advantage for the strategy. Thus,
the efficacy of the strategy going forward is uncertain. For these reasons, the strategy is placed on Watch status.
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