Benefits October 15, 2003

Assets In Managed Accounts Could Total $600 Billion By 2010

October 15, 2003 (PLANSPONSOR.com) - The majority of the 20 largest defined contribution plan sponsors intend to provide their participants with a managed account option by the end of next year.
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With 75% of the 20 largest plans having their sights on this option by year-end 2004 combined with other expansion plans in this area, by 2005, a managed account option will be available to at least 5 million plan participants, with more than a million of those electing to have their plan assets invested professionally through a managed account. Continuing along this growth trend, assets in these programs will total approximately $50 billion by year-end 2005, and over $600 billion – 10% of all defined contribution assets – by 2010, according to results of NewRiver Inc. survey.

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Plan providers expressed optimism in the impact these plans will have on their participant base. Among the reasons cited by plan providers for offering a managed account were better asset allocation for participant assets and increased participant contributions. Additionally, plan providers see this option as a means to reduce their fiduciary risk by providing the option of professional management to plan participants. Overall, providers project participants will be charged on an asset-based fee, anticipated to range from 0.20% to 0.75%.

Citing criteria laid out in a December 2001 Department of Labor Advisory Opinion, NewRiver says the managed account programs will be provided largely on an automated basis, using a variety of tools that include:

  • computer-based asset allocation
  • portfolio optimization
  • risk management
  • portfolio rebalancing.

The survey found providers are expecting the managed account model to be more readily accepted than advice alone, with annual adoption rates among participants growing at approximately 20% annually over the next five years.

“We believe that the managed account option has the potential to revolutionize defined contribution plan offerings,” stated Darlene DeRemer, Executive Managing Director at NewRiver. “DC participants clearly want, and need, more assistance and help, with the demand for advice continuing to increase as assets in defined contribution plans continue to grow. Many participants simply do not want, do not know how, or do not have the time to manage their own accounts.

The survey is based on responses from 24 of the 50 largest defined contribution plan sponsors. Those responding represent approximately $1.7 trillion in defined contribution assets, and more than 45 million plan participants.

Investing October 14, 2003

MSCI: Hedge Funds Harvest 1.6% Gain in September

October 14, 2003 (PLANSPONSOR.com) - Preliminary results show the MSCI Hedge Fund Composite Index gained 1.6% in September.
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With 64% of the funds reporting, the Composite’s gain is higher than August’s 0.9% (See  Hedge Funds Return 0.94% in August ) and the MSCI World Equity Index, which up 0.5%.  For the year, the Composite index is up 11.1%, underperforming its World counterpart’s 14.8% return, according to a MSCI news release.

Compared to the World Sovereign Debt Index, which returned a 5.7% gain in September, the Composite index was worse for the month.  For the year, the World Sovereign Debt Index has now returned 9.3%.

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Group Report

September’s largest process group gainer, based on 54% of funds reporting, was the Multi-Process Group, up 2.3%.   Multi-Process, strategies that focus on spread relationships between pricing components of financial assets or commodities, has now returned 15.2% year-to-date.

The remain four indexes also posted positive monthly returns, lead by the Security Selection and Specialist Credit Indices’ 1.8%-September returns.   Security Selection, those managers who combine long positions and short sales with the aim of benefiting from their ability in selecting investments while offsetting systematic market risks, has now returned 14% year to date on a 63% reporting rate while Specialist Credit, those funds that seek to lend to credit-sensitive issuers, has now returned 15.7% year to date based on 59% of funds reporting.

Rounding out the list was a 1.6% gain notched by the Relative Value Index and a 1.1% September return posted by the Directional Trading Index. With 74% of funds reporting, Directional Trading, strategies based upon speculating on the direction of market prices of currencies, commodities, equities, and bonds in the futures and cash markets, is up 7.8% year to date.  Similarly, Relative Value is also positive for the year 6.2%, with 62% of funds reporting.

The MSCI Hedge Fund Indices are composed of more than 190 indices. More than 1,800 hedge funds have agreed to participate in the database and there are over 1,600 hedge funds currently in the MSCI Hedge Fund Indices and Database.

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