LAKE WORTH, Fla. -- This might be the year mutual fund managers search for acquisitions or joint ventures like last month's foray announced by Citigroup Inc. and State Street Corp.
The new joint venture,
CitiStreet, will do everything for plans -- 401(a), 401(k), 403(b) and 457 -- except manage the money and is aimed at giving each company access to new defined contribution plan markets.
"The 401(k) market is becoming a bigger driver of market share," said Fred D. Barstein, managing director of research group and consultant at Insight In Formation, Lake Worth. "The reason is that 401(k) assets are growing incredibly fast."
Mr. Barstein's firm surveyed almost 65,000 companies and found there are service providers ripe for buyout or joint venture so both sides gain access to new markets.
In a mature market, the main way of getting business is taking it away from someone else, Mr. Barstein explained. Also, the more mature the market, the more pressure on fees, he said.
"When the market consolidates, the weak get out because then it is all about distribution," Mr. Barstein said.
In the small plan market, banks and insurance companies are most likely to gain from seeking joint ventures or acquisitions. They have the money to buy their way into the large 401(k) plan market and would be the companies most likely to either acquire a mutual fund company or enter into a joint venture, Mr. Barstein said.
Banks might not have a large market share in any of the 401(k) business, but they do have a tremendous amount of financial clout in terms of assets under deposit, he explained. Insurance companies also have the money from their other businesses to acquire a mutual fund company to gain a toehold in the large plan market, Mr. Barstein said.
"It is more likely an insurance company will buy a mutual fund company than a mutual fund company will buy an insurance company," Mr. Barstein said. "There's a nice synergy between insurance companies and mutual fund companies."
Service providers dominant in the larger markets, meanwhile, will look to small plan market vendors' distribution channels for their proprietary funds, Mr. Barstein said.
One clue as to who might deal with whom: Mr. Barstein said to look at companies with a presence in one market, but not in another.
For example, Salomon Smith Barney -- a Citigroup subsidiary -- was eighth with 2% of assets in the small plan (under $5 million) market ranking, while State Street had 0.4% of a share in the small market, according to Insight In Formation's data. Among service providers to big plans, State Street is ranked third with 5.7% of large plan market assets, just under Fidelity Investments, Boston, and The Vanguard Group Inc., Valley Forge, Pa.
Among the possible players, Principal Financial Group, Des Moines, Iowa, has 7.7% of the small plan market, yet hasn't cornered any part of the business for plans with more than $100 million, Insight said.
Principal already has taken some steps. In November, it starting offering a large-cap growth fund separate account managed by Duncan-Hurst Capital Management, San Diego, and a midcap growth fund, said Kelly Thomson, vice president of marketing and client services at Duncan-Hurst.
Sometime this year, Duncan-Hurst will roll the insurance company separate account into a mutual fund, Mr. Thomson said.
"At this point the arrangement with the Principal is a partnership of sorts," said Mr. Thomson. "It gives us access to their distribution. We can tap into their sales and service while we do what we do best, which is manage the assets."
MassMutual Life Insurance, Springfield, Mass., has about 2.4% of the small plan market. Like Principal, it's not even on the large plan list.
Mr. Barstein said others growing fast in the small plan market are ManuLife Financial, Buffalo, N.Y.; Scudder Kemper Investments Inc., Boston; and Lincoln Capital Management Co., Chicago. But if they want to play in the large plan market, they will have to buy a company or create a joint business, he said.
Who will they buy or join in a venture? Topping the list of large plan service providers are Fidelity, Vanguard and State Street, followed by Putnam Investments, Boston, and Deutsche Bank Securities Inc. (formerly Bankers Trust Co.), New York.
Deutsche has not made much of a dent in the small and medium plan market, but Putnam has garnered 1.7% of small plan assets, ranking it ninth in that market, Insight In Formation data reveals.
"Northern Trust (Global Advisors Inc., Stamford, Conn.,) is sitting similar to where State Street was. They have nothing but the large market," Mr. Barstein said.
Some players, meanwhile, might not venture any further than the deals they already have done.
At CIGNA, which ranks seventh in the small plan markets with a 2.2% market share, Robert F. Clark, senior vice president of CIGNA Retirement and Investment Services, Hartford, Conn., said the firm has no plans to go beyond the investment option alliances it already has in place.