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Cerulli's research also notes that custom target-date funds open the door for alternatives in DC plans as alternative asset classes have long been missing from these plans' investment lineups. Custom target-date funds may choose alternative structures (such as collective trust funds) over mutual funds, but mutual funds are expected to remain the product of choice for the majority of choices in plan investment lineups. The fact is that investment vehicle is a secondary consideration, and if savings from a collective trust is not significant, then plan sponsors are likely to continue to use mutual funds, especially in the large market ($250 million to $1 billion in plan assets) where mutual fund use as a percentage of assets is higher than in the mega market ($1 billion +). Assets in standalone investment choices will remain relatively flat as target-date funds continue to garner assets. Investment menus will continue to evolve, opening the door for products that have had limited success in defined contribution plans, such as alternatives and managed accounts. Asset managers should expect that best-in-class funds based on performance in traditional asset classes will continue to win mandates, but in the long-term, a fund’s role in an asset allocation strategy will become more important. Consultants are the primary source of information for plan sponsors. Only 12% of plan sponsors indicate that conferences are the initial source of defined contribution plan information. Cerulli contends an outsourced CIO solution makes sense for plans that lack the time and resources to effectively manage the defined contribution investment menu.
Cerulli's research also notes that custom target-date funds open the door for alternatives in DC plans as alternative asset classes have long been missing from these plans' investment lineups. Custom target-date funds may choose alternative structures (such as collective trust funds) over mutual funds, but mutual funds are expected to remain the product of choice for the majority of choices in plan investment lineups.
The fact is that investment vehicle is a secondary consideration, and if savings from a collective trust is not significant, then plan sponsors are likely to continue to use mutual funds, especially in the large market ($250 million to $1 billion in plan assets) where mutual fund use as a percentage of assets is higher than in the mega market ($1 billion +).
Assets in standalone investment choices will remain relatively flat as target-date funds continue to garner assets. Investment menus will continue to evolve, opening the door for products that have had limited success in defined contribution plans, such as alternatives and managed accounts. Asset managers should expect that best-in-class funds based on performance in traditional asset classes will continue to win mandates, but in the long-term, a fund’s role in an asset allocation strategy will become more important.
Consultants are the primary source of information for plan sponsors. Only 12% of plan sponsors indicate that conferences are the initial source of defined contribution plan information.
Rebecca Mooreeditors@plansponsor.com