Has Intech invoked its business continuity plan (BCP) in response to COVID-19?
Yes. Intech’s BCP committee has been monitoring the outbreak of COVID-19 since the beginning of the year. Our BCP response has increased since then as the virus continues to spread. As of March 18, 2020, all Intech employees are working remotely, and all production systems are functioning normally. The BCP committee continues to meet daily in response to this pandemic.
What is your ongoing communication approach internally and externally?
On March 3, 2020, we began providing employees frequent and clear guidance about the then outbreak to aid in virus prevention and reducing its spread. This included the latest news from local and national governments, policies and procedures, and information from the World Health Organization and the U.S. Center for Disease Control. We continue this education in our current remote environment. Additionally, we are encouraging our managers to have frequent video-based meetings with their teams to help keep employees connected. Executive committee members are also holding bi-weekly check-ins with every member of their respective teams.
Also, on March 3, 2020, we emailed consultants and our clients an update on Intech BCP actions and offered a similar update on our website. However, given the evolving nature of the pandemic and government responses, we also started publishing this COVID-19 Response Update on April 1, 2020. The goal of this page is to keep our stakeholders informed about what Intech is doing to prevent the spread of the virus, protect lives, and keep our business running smoothly. We will update it as events dictate.
Has Intech made any changes to its BCP because of COVID-19?
While our BCP has proven effective in the face of previous environmental threats, it is expanding to more extensive measures in both duration and magnitude as the COVID-19 pandemic evolves. For more details, including the latest updates on our BCP efforts, we encourage interested parties to visit this COVID-19 Response page.
What changes have you made to your working arrangements, and to what extent is it affecting or disrupting aspects of your business?
Our BCP has contingencies for every aspect of our business, including human resources, business processes, applications, data, technology, facilities and business partners. In response to the current pandemic, we are currently operating an entirely remote workforce and have suspended all travel and non-essential visits. Our actions are not having material effects on our operations, and we are not experiencing business disruptions.
Has the change in the work environment exposed new business risks that you are now addressing?
Changes to our work environment in response to the pandemic have not revealed any new risks material to operating our business.
Have you had any supplier disruptions?
Intech has not experienced any supplier disruptions related to the pandemic.
Is Intech prepared to have its personnel operate remotely for the near term (e.g., 3+ months) if required or appropriate? Have you tested these capabilities to support increased traffic?
Yes. Intech’s BCP has been hurricane-tested numerous times, and having a remote workforce is not new to our firm. To provide our staff with remote capabilities, we employ Cisco Adaptive Security Appliances, which provides Virtual Private Network (VPN) connections to Intech’s corporate network. We deploy these devices in redundant pairs for our West Palm Beach headquarters and Princeton portfolio management offices. This environment gives team members the same resources that are available to them while working on-site, including Cisco WebEx conferencing tools. We have used remote capabilities during hurricane evacuations and recently stress-tested the infrastructure for potentially higher traffic. We are fully prepared to operate remotely for well over three months, if necessary. The entire infrastructure is currently functioning normally.
Are there any business operations that your firm is unable to perform remotely?
No. Intech can perform all business operations remotely.
Does Intech have any concerns about any of its key third parties that it relies upon to manage clients’ portfolios? How do you garner assurance in their fulfillment capabilities?
We have no concerns currently. Intech requests information from all key third party providers to ensure they are actively monitoring this situation and implementing contingency plans as appropriate. Because external risks are outside Intech’s control, we focus on identifying them, assessing their potential impact, and figuring out how best to mitigate their effects should they occur. We will continue to monitor and evaluate the preparedness of critical third parties and their ability to meet service level agreements.
Does Intech foresee any potential scenarios (related to COVID-19) whereby you cannot meet key service level agreements?
We are confident that we are well prepared to meet ongoing commitments to our clients, given our comprehensive BCP approach and positive status of its implementation.
What are your contingency plans to support Intech’s non-U.S. locations?
Contingency plans for global locations mirror those for U.S. locations. They include working remotely and travel restrictions. In place of travel, personnel in London are interacting with consultants and our clients by phone, video conferencing, and email.
Has Intech adequately cross-trained staff?
Yes. Intech is a small firm and views cross-training as a necessary and integral part of employee development because it offers us scheduling flexibility, employee enrichment, and better collaboration. As it relates to BCP, it also improves workforce sustainability in the chance we suddenly need to fill or take over a role. We believe Intech is better prepared than most to weather widespread, extended employee absence because of our cross-training.
What other steps or actions is Intech taking in response to COVID-19?
Intech has been monitoring the spread of COVID-19 since January 13, 2020, and Intech’s BCP committee continues to meet daily to evaluate risks and contingencies, confer with our executive committee, and communicate with employees, clients, consultants, and other stakeholders.
Are you experiencing any issues with your BCP implementation?
Intech is not experiencing any material issues with our BCP implementation.
What are your current assets under management?
Intech is a subsidiary of Janus Henderson Group (JHG), a publicly-traded company; as such, we cannot report assets under management ahead of our parent company’s earnings call. As of December 31, 2019 our total assets under management was $45.2 billion.
Have you been able to meet redemption requests?
We are pleased to report that we have not experienced any issues in our settlement and clearing processes and have been able to process all our clients’ cash flow requests in a timely manner.
Has reduced asset level affected profitability, and what measures do you anticipate taking (if any) to bolster profitability and cash flow?
Our clients expect judicious and responsible care over their assets, and that stewardship includes Intech’s financial integrity. During the bull market, we made prudent expense reductions, which allow Intech to weather significantly reduced levels of assets under management. We prepared ourselves for the current scenario and beyond; therefore, we do not anticipate taking additional actions.
Has Intech modified or changed its investment process since the COVID-19 outbreak?
No, we have not modified or changed our investment process in response to COVID-19. COVID-19 may be new to our world, but the associated market volatility is not. Intech’s investment process has weathered significant drawdowns in 1987, 2000, and 2008. And while there is no true historical analog for the current environment, liquidity and pricing risks remain within design tolerances of our investment process. Our entire investment management operation remains robust and functioning as anticipated.
How would you characterize the level of risk in your portfolios, and what would it take to make a pronounced shift in it (either higher or lower from here)?
“Risk” in our portfolios reflects the investment objective of the strategies. For our relative-risk strategies, we use tracking error (i.e., active risk) to define risk levels. These strategies seek the lowest active risk to attain an excess return objective. Our defensive equity strategies use standard deviation (i.e., total risk) to define risk levels, and attempt to minimize total risk to attain benchmark-like returns or better. The risk exposure for both types of strategies will change as we systematically replenish diversification in our optimization process: risk levels are inherently dynamic, conditional on the current market structure.
How are liquidity conditions affecting your ability to trade?
Overall, liquidity has generally been good. We observe elevated volumes in the market and we also see widening bid-ask spreads. The net result has been generally higher trading costs and greater daily variability, but this has not caused any material issues with implementing our systematic investment process. We continue to monitor the market conditions with our partner brokers daily.
Have you had to back away from trading?
We have risk management procedures that address infrequent market events that affect trading activity. For example, we have thresholds that permit the trading team to halt trading in a stock if its return lags the portfolio’s benchmark by 20% or more in any single trading day. This has occurred with increased frequency in the past few weeks. By standing operating procedures, we continue to monitor these securities and resume trading when they have stabilized relative to the market. This type of risk management measure has always been a part of our investment process. We have not had to back away from trading in entire markets.
Have you had to resort to manual interventions?
No. There have been no manual interventions in our process because of increased volatility; however, there is always a daily manual verification of our systematic process.
Are you having trouble marking assets to market (i.e., valuation)?
No. We invest primarily in large-capitalization stocks that trade publicly and are members of widely used benchmarks; therefore, these stocks exhibit high liquidity and transparent pricing.
What percent of the portfolio is appropriate to hold in cash now?
Intended for liquidity purposes, our cash balances in portfolios are minimal – generally 1% or less of the portfolio. Intech does not generally practice market timing nor use cash as a risk-management method; therefore, we fully invest our portfolios. We have no intent to change our cash positions in our relative-risk and defensive equity strategies.
Will your defensive equity strategies “defend” on every down day?
We designed our low-volatility and adaptive-volatility strategies to provide downside protection during extended market drawdowns. They have generally delivered during this difficult period; however, on a daily basis, we should not always expect defensive equity strategies to outperform when the market is down or vice versa. For example, we have seen defensive segments of the market underperform during down-market days and outperform during up-market days. We can expect these counter-intuitive dynamics in turbulent market environments, primarily driven by investor uncertainty and panic. Keeping a long-term view is critical when evaluating our defensive strategies.
Do you expect to maintain the current size and capabilities of the investment team?
We do not anticipate any changes to our investment team because of recent market events.