Administration April 22, 2014

DB Plans to Increase Alternative Investments

April 22, 2014 (PLANSPONSOR.com) – New research indicates defined benefit (DB) plans will turn increasingly to alternative investments during 2014.
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A recent survey of investment consultants by global analytics firm Cerulli Associates confirms that U.S. institutional investors across client segments have increased their exposure to alternative assets since 2007. Cerulli’s research indicates as institutional investors increasingly take an objective-based approach to portfolio construction, hedging and risk management allocations will grow in importance within institutions’ portfolios.

Investment consultants polled by Cerulli expect DB pensions will increase allocations to hedge funds (65% of consultants), other private investments (56% of consultants) and private equity and venture capital (50% of consultants) during the next 12 months. In addition, they anticipate nonprofits will increase their proportion of alternative investments during the next year, specifically allocations to other private investments (75% of consultants), private equity and venture capital (58% of consultants), and hedge funds (46% of consultants).

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“The 2008 financial crisis left institutions in search of more consistent portfolio returns across different economic environments,” says Michele Giuditta, associate director at the Boston-based Cerulli. “There is new thinking around portfolio construction, leading institutions to reevaluate their models for governance, asset allocation, and implementation.”

The report explains, “One challenge of a risk-based allocation is the lack of consistency among institutions’ classification methods. As this shift continues, traditional asset classes and style boxes are increasingly irrelevant. Blurring asset class boundaries typically leads to higher allocations to alternatives, as institutions seek assets whose returns are less correlated with domestic equities.”

More information about the research, including how to purchase a copy, can be found here.

Products April 22, 2014

Invesco Increases Collective Trust Funds for DC Plans

April 22, 2014 (PLANSPONSOR.com) – Invesco National Trust Company (INTC) will now offer an additional 15 collective trust funds (CTFs).
Reported by

The addition of the funds is in response to increased demand in a variety of strategies and share classes within defined contribution (DC) retirement plans, the company says. The new fund lineup has already been added to the platforms of a number of DC recordkeepers and expands the opportunity for retirement plans to invest in strategies that span across all major asset classes and are delivered through a variety of vehicles, according to INTC.

Each new CTF offers three share classes with a flat-rate, all-in fee. Client service fees in each share class range from zero to 15 basis points, to better meet plan sponsor needs. The new funds, which include domestic equity, foreign equity, fixed income and alternative funds, raise to 34 CTFs Invesco National Trust Company now offers the retirement plan market.

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“This new fund lineup allows Invesco to provide a standardized offering to clients and recordkeepers,” says Betsy Warrick, vice president, Invesco National Trust Company, based in Atlanta. “We find that recordkeepers appreciate the simplicity of net share classes, which will make the new funds more available in the medium-sized and even small-plan markets.”

INTC explains CTFs, also referred to as pooled or commingled funds, are similar to mutual funds, but with a few notable differences, including:

  • Administered by banks and trust companies, and designed exclusively for qualified retirement plans, including defined benefit (DB) and DC plans;
  • Regulated by either the Office of the Comptroller of the Currency (in the case of nationally chartered banks) or state banking examiners, with oversight by the Department of Labor;
  • Not available to retail investors; and
  • Only indirectly available to individual retirement plan participants as options within their plan investment menu.

CTFs are becoming an increasingly attractive option for plan sponsors, according to INTC. In 2013, more than half of DC plans (52%) offered CTFs in their fund lineup, up from 44% in 2011. Heightened regulatory and legal scrutiny of plan fees and costs are primary drivers of the growing popularity of CTFs in DC plans, the firm says.

According to INTC, CTFs are a cost-effective vehicle because they are exempt from securities registration requirements, but in most cases provide informational materials for plan participants that are similar to mutual fund fact sheets. Some see CTFs as more customized and less expensive investment strategies (see “Time to Consider a Collective Trust?”). While CTFs have historically been cumbersome for retirement plans to administer, today’s technology has enabled a more seamless operation on recordkeeper platforms.

The new CTFs now available from Invesco National Trust Company are:

  • Invesco Equity and Income Trust;
  • Invesco Global Opportunities Trust;
  • Invesco International Growth Trust;
  • Invesco Global ex-U.S. Diversified Equity Trust;
  • Invesco Diversified Dividend Trust;
  • Invesco Growth and Income Trust;
  • Invesco Comstock Trust;
  • Invesco American Value Trust;
  • Invesco Charter Trust;
  • Invesco Mid Cap Core Equity Trust;
  • Invesco Small Cap Equity Trust;
  • Invesco Mid Cap Growth Trust;
  • Invesco Small Cap Discovery Trust;
  • Invesco Corporate Bond Trust; and
  • Invesco High Yield Trust.

Invesco National Trust Company is a manager of collective trust funds, with more than $63 billion in assets under management as of December 31, 2013. More information is at www.invesconationaltrust.com.

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