Rachel Volynsky, Mercer Canada
Jaime Hogge

Many firms talk about delivering value for clients, but Rachel Volynsky lives and breathes it. The 20-year veteran of the investment industry has managed “just about every asset class” and been through the ups and downs of market cycles.

Volynsky knows value when she sees it.

That’s what made the opportunity to join Toronto-based Mercer Canada, a subsidiary of Marsh & McLennan Cos., so attractive to Volynsky.

“It was in the job description: the main goal of Mercer is to add value to clients,” says Volynsky, who was appointed chief investment officer of Mercer’s delegated solutions division in September. “It’s very important to me to make sure that people actually get value for what they pay. I couldn’t think of a better platform to practise what I believe is right.”

Volynsky, in her new role, leads Mercer Canada’s outsourced chief investment officer (OCIO) team, which provides investment consulting and portfolio-construction services to a variety of institutional clients, including pension funds, endowments and foundations, and family offices across Canada. Globally, Mercer has more than US$200 billion in delegated assets under management.

Volynsky describes the OCIO model as a “beautiful concept” that allows her to use Mercer’s economies of scale to deliver value for clients through better asset allocation, investment managers and fees – the last of which Volynsky is “very particular about.”

“I see this model scaling beautifully to endowments and foundations; to private high net-worth and mass-affluent [clients],” she says. “The sky is the limit.”

Volynsky says she’s “on a mission” in her new role and plans to use what she refers to as her “vigilante approach” to deliver the best possible results for her clients.

“I do see a lot of stuff happening [in the industry] that I wish wasn’t happening,” Volynsky says. “I see a lot of client funds [that are], I wouldn’t say misallocated, but not optimally allocated. I see a lot of clients overpaying for their services.”

Volynsky, a chartered financial analyst who speaks five languages, obtained an MBA from York University. Prior to joining Mercer, she held a variety of senior roles in the financial services industry, most recently as head of Canadian equity and senior portfolio manager at SEI Investments Canada Co.

The Moscow native says she’s “seen it all” during her time, and adds that her ability to ask “very pointed questions” – a skill she picked up while working as an intelligence officer with the Israel Defense Forces – has helped her master the art of optimal portfolio construction.

“You have to be almost surgical about the risks that you’re taking. That’s where my background and expertise come in handy, because I question everything. I question every facet of risk that my subadvisors are taking,” Volynsky says.

One question that clients, particularly pension funds, may be asking now is about the status of their funded plans, given the current low interest rate environment.

“Low interest rates are the nemesis of every pension fund,” Volynsky says. But, while she acknowledges that low rates are the “worst nightmare” for these funds, she says the investment industry has adapted to the current climate.

“The industry has been in this declining interest rate environment for a very long time and learned to adjust,” Volynsky says. “On the pension front, liability-driven investing has been – especially since the [2008-09 global] financial crisis – heavily adopted. Clients are very mindful of the fact that interest rates can affect not only their returns, but their liabilities.”

As dropping yields continue to threaten the funding positions of pension funds, Volynsky says some form of asset/liability matching is “almost a given” by any consulting practice working with defined-benefit pension plans. Such strategies hedge a pension fund’s assets against interest rates and inflation.

The most recent Melbourne Mercer Global Pension Index, released in October, lists Canada’s pension system in 9th place in a global ranking of 37 countries, up from 10th in 2018. This improvement was driven in part by growth in assets under the management of the Canada Pension Plan and the Quebec Pension Plan.

But the Mercer report notes Canada still has a US$2.5-trillion gap between existing retirement savings and future retirement needs. And those needs will continue to mount as Canadians live longer and the population ages.

A recent report from U.K.-based GlobalData PLC backs up that stance, predicting that by the year 2025, 141 cities in Canada and the U.S. will have an old-age dependency ratio – the ratio of people over 65 vs people who are working age – of more than 30%.

Longevity risk, Volynsky observes, contributed to “the decline of the defined-benefit plan and the proliferation of the defined-contribution plan” as plan sponsors balked at the prospect of paying pensioners who had longer life expectancies. To address the fact that people are living longer, Volynsky says, Mercer’s strategy incorporates target-date funds that assume participants will begin decumulating later in life than age 65. “Before, the conventional wisdom was that you hit 65 and you begin your decumulation phase,” she says, adding, “we were astute to recognize that people are living longer and, for example, your decumulation phase doesn’t necessarily start at 65.”

Volynsky notes that most 65-year-olds don’t have the same risk profile as, say, an 85-year-old, but that doesn’t mean every 65-year-old is eager to take on risk: “If you’re somebody who’s fairly wealthy and you have a corporate pension, your risk profile is not going to be [the same as] somebody who’s a blue-collar worker with not a lot of pension who’s hit 65. You have to be attuned to those nuances, but obviously you can still accumulate – or not fast-forward yourself to the decumulation stage – at age 65.”

Another risk to consider, regardless of the client Volynsky works with, is that of an impending recession. While Volynsky says she thinks we’re in “the latter innings” of the market cycle, she adds the thought of recession doesn’t keep her up at night: “I cannot worry about recession.”

Instead, Volynsky worries about constructing investment portfolios that are designed to withstand recessions. Although the exact timing of a recession is impossible to predict, Volynsky says being prepared for one is what counts – and that preparedness comes down to the portfolio-construction process. While she won’t disclose the “secret sauces” of her process, she does say it’s one she trusts.

“Our process is designed to function throughout cycles. Part of the portfolio should work better in recessionary times and part of the portfolio should do well in expansionary phases,” Volynsky says. “If a part of the portfolio is suffering in a recession, but I anticipated that and mitigated the risk through other parts of the portfolio, then that’s OK.”

A constantly changing economic environment requires an investment strategy that can keep pace. Investment plan sponsors may not have the time to react quickly to capitalize on market developments – but, Volynsky says, that is where an OCIO can deliver value: seizing opportunities when they arise and changing course when necessary.

“The beauty of what we do is that we actually do add value [for] clients,” Volynsky says. “All I can do is be in control of the process and make sure the process is robust and constantly getting better.”