When the news broke earlier this week that Jeffrey Gundlach’s DoubleLine Total Return Fund was added to the investment lineup of Jackson National’s Elite Access variable annuity, it was rather big news in the usually quiet annuity world. Even the mainstream financial press, which typically doesn’t cover annuities to any great depth on a daily basis, picked up on it.
The mandate’s size – $450 million – was also quite large. So what does the deal say about the larger variable annuity industry?
John McCarthy, product manager, annuity solutions, at Morningstar, terms the deal “strategic and significant” for DoubleLine. Yet despite the size of the deal and the well-known players involved, the partnership between DoubleLine and Jackson National is indicative of what commonly transpires between variable annuity (VA) carriers and asset managers.
For DoubleLine, fastening its fund to a large VA carrier like Jackson National enables it to get in front of more potential investors and advisors. In essence, it’s another distribution channel for DoubleLine, and it should be a lucrative one: Jackson National was the top seller of variable annuities and annuities overall in Q2, according to LIMRA.
“If you’re an asset manager you are looking for different distribution channels,” McCarthy says. “You want to be on a platform to different broker-dealers, and inside 401(k)s. A very significant area where you can gather assets if you are an asset manager is in the variable annuity space. If you want to be in that space, you have to be attached to a particular contract.”
In turn, Jackson National fetches another investment choice for its Elite Access policyholders or potential buyers. VA carriers routinely churn their offerings, pruning lesser-quality funds in favor of four- and five-star options. Typically, the average VA has roughly 60 sub-accounts. “Every variable annuity carrier wants to have a well-rounded selection of investments inside their contracts,” McCarthy states.
He terms the DoubleLine Total Return Fund, which has assets of $35.4 billion, as conservative. In that sense, the fund’s selection is revealing of VA carriers wanting to tamp down volatility at the sub-account level. Conservative bond funds – DoubleLine’s Total Return Fund’s invests about 80 percent of its assets in bonds – are “easier and cheaper to hedge,” McCarthy notes.
Hedging is particularly important if the VA offers guaranteed living or death benefits that could pay out 10 or 15 years in the future. Jackson National markets variable annuities with and without living benefits. However, the Elite Access product, McCarthy points out, is geared toward investors who seek tax-deferred investments, not living benefits.