Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. Online
November 09, 2009 12:00 AM

Smaller players foundering in target-date market

Liquidations likely to increase record keepers' dominance, foster customization

Jessica Toonkel Marquez
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    There have been more than double the number of target-date fund liquidations this year than there were in all of 2008, indicating how difficult it is for money managers unaffiliated with 401(k) record keepers to build assets in such funds.

    There have been 15 liquidations in 2009, up from seven for all of 2008, according to data culled from Morningstar Inc. Moreover, experts predict that trend to increase.

    Payden & Rygel, Old Mutual Asset Managers and Allstate Insurance Co. are among a growing number of firms that have liquidated their target-date funds or are planning to do so.

    “I have heard of a few managers' pulling back,” said Lori Lucas, executive vice president and defined contribution practice leader for Callan Associates Inc., a San Francisco-based institutional investment consultant. “Some managers are discussing scrapping their own target-date funds in favor of being part of custom target-date portfolios or as subadvisers to these funds.”

    Target-date funds are sold predominately in the 401(k) market. The biggest sellers of these funds tend to be those firms that act as record keepers for 401(k) plans.

    If all but a handful of the available target-date funds are those offered by the top 401(k) record keepers, it will help advisers who serve this market to pitch the value of customized portfolios to their plan sponsor clients, some experts contend. But less competition may also mean less innovation among such funds, others fear.

    Gill Armour, a financial adviser with independent-contractor broker-dealer SagePoint Financial Inc., said he will be disappointed to see fewer choices in the target-date fund market. “It's just going to mean more work for advisers like me” who work with plan participants, he said. “We are going to have to do more customization of portfolios.”

    Another concern is that less competition will mean less innovation.

    “We look toward some of the smaller target-date fund series for alternative asset classes, whereas the bigger ones are very plain-vanilla,” said Christian Bretz, an investment and operations manager for Wells Fargo Insurance Services Inc. “I worry about innovation.”

    “Target-date fund providers that don't have record-keeper affiliations are finding it harder to compete, and as a result, more are going to shut down,” said Benjamin F. Phillips, a partner and director of research at Casey Quirk & Associates LLC. “This gives advisers more of an incentive to offer customized portfolios to 401(k) plan clients.”

    Customized target-date options will hold $1 trillion by 2019, compared with $53 billion today, according to a recent white paper published by Casey Quirk.

    The issue is that the top 401(k) record keepers dominate the target-date fund market, critics said.

    In response to hearings held Oct. 28 by the Senate Special Committee on Aging that looked at conflict-of-interest issues associated with target-date funds, the Investment Company Institute said a statement: “Plan sponsors can choose whether or not to use target retirement date funds offered by the plan's record keeper.”

    But non-proprietary funds are rarely chosen, according to research conducted exclusively for InvestmentNews by BrightScope Inc., a 401(k) data and analytics firm.

    Across a sample of 1,347 plans handled by the top four record keepers with target-date funds, 94% of plans held only the record keepers' target-date funds. That number hits 100% for plans managed by The Vanguard Group Inc., 97% for plans run by T. Rowe Price Associates Inc., 94% for plans run by Fidelity Investments and 93% for plans run by Principal Financial Group.

    “The question is: Do 90% to 100% of plans really think that the target-date funds they offer are the right funds for their plans?” said Ryan Alfred, co-founder and president of BrightScope.

    Recent Morningstar ratings of these target-date fund providers bear out Mr. Alfred's statement. Fidelity's target-date funds received an average rating and Principal's a below-average rating. The firm gives T. Rowe and Vanguard top ratings for their target-date funds.

    “I don't think Fidelity has its best funds in its target-date fund series,” said Laura Lutton, an analyst at Morningstar. “And Principal is a bit of a mixed bag.”

    “We absolutely stand by our product,” said Jennifer Engle, a spokeswoman at Fidelity. “When people hire Fidelity, there is a reason they do so.”

    Pricing for outside funds in Fidelity-run 401(k)s depends on the plan, she said.

    Ed Giltenan, a spokesman for T. Rowe Price, declined to comment on whether the firm charges more for plans to choose outside funds.

    Jaime Naig, a spokeswoman for Principal Investments, couldn't comment by press time. The firm's LifeTime Series does offer funds managed by outside managers as well as its own.

    “We believe our funds are best-in-class, and (we) do not currently record-keep non-Vanguard target-date funds,” said Linda Wolohan, a Vanguard spokeswoman.

    Fewer choices ahead

    But even if plans do have access to outside target-date funds and are willing to pay more to get them, the choices they may have will continue to shrink.

    “What most asset managers tell us is, a fund has to have $100 million to $150 million in assets to be profitable,” said Cindy Zarker, a director at research firm Cerulli Associates Inc.

    Excluding funds launched this year, there were 328 target-date funds as of Sept. 30, according to Strategic Insight/Simfund data culled by Cerulli. Of those, 176 had less than $100 million in assets.

    Payden & Rygel closed its Payden/Wilshire Longevity funds Oct. 15 after less than three years in the market. The four funds, launched in July 2007, had $10 million in assets. The firm decided to close the funds “to focus on the core business,” said Kimberly Tipton, a spokeswoman.

    Old Mutual filed in September with the Securities and Exchange Commission to shut down its 12 target-date funds. These funds, which had a combined $4.5 million in assets, will close in December, according to the filing.

    Allstate liquidated its seven lifecycle funds in June, 13 months after they were launched. The funds had a combined $1.9 million in assets.

    Jessica Toonkel Marquez is a reporter at InvestmentNews, a sister publication of Pensions & Investments.

    Recommended for You
    Happy Fourth of July greeting
    No P&I Daily for Independence Day holiday
    Juneteenth_1550_i.jpg
    No P&I Daily on Juneteenth
    No P&I Daily on Memorial Day
    No P&I Daily on Memorial Day
    SPDR® ETF’s New Approach to Bond Liquidity
    Sponsored Content: SPDR® ETF’s New Approach to Bond Liquidity

    Reader Poll

    June 6, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Nearing the finish line: Ideas on end-state investing for corporate DB plans
    The Meaning of "Portfolio Intelligence"
    Credit Indices: Closing the Fixed Income Evolutionary Gap
    Forever in Style: Benchmarking with the Morningstar® Broad Style Indexes℠
    Crossroads: Politics, Inflation, & Bonds
    Is there a mid-cap gap in your DC plan?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    June 20, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit