Defined contribution managers bounced back a bit from the morose markets of 2008, as assets under management rose 19.7% in 2009. However, the year-end 2009 AUM total was still 12% below that of what investors and managers consider the good-old days of 2007.
The 278 managers reporting DC assets under management for year-end 2009 in Pensions & Investments' annual survey reported $3.26 trillion in total defined contribution assets. That figure compares with $2.72 trillion at year-end 2008 and $3.7 trillion in 2007. Internally managed DC assets in 2009 were $2.91 trillion, up 19.5% from $2.44 trillion at year-end 2008, but still below the $3.25 trillion from year-end 2007.
Asset mixes shifted noticeably during the two-year period since P&I last published defined contribution data. (While P&I gathered data for year-end 2008, it did not publish the data.) By Dec. 31, 2009, the aggregate equity component had dropped to 53% from the 63.7% two years earlier. Fixed-income, meanwhile, grew to 22.9% and stable value investments grew to 14.2%, from 16.4% and 11.6%, respectively.
Cash played a bigger role in 2009, representing 5.6% compared with 3.8% in 2007. Other investments, including alternatives, accounted for 4.3% of overall assets compared with 4.5% in 2007. The year-end 2009 survey was the first in which P&I broke out alternatives for DC managers; that broad category accounted for 1.4 percentage points of the total 4.3% in “other.”
The big shift in asset mix between 2007 and 2009 is due more to market factors than to panicky investors or sponsors.
“I think the ramp up (of greater percentages) in fixed income and stable value and cash was more a reflection of the shrinking of equities,” said Tom Kmak, Kansas City, Mo.-based CEO of Fiduciary Benchmarks Inc. “I don't think they're withdrawing funds or making dramatic changes.”
Toni Brown, director of client consulting for Mercer LLC in San Francisco, agreed that the damage to equities from the markets during the period played the biggest role in altering the asset mixes.
Taking P&I's data and applying some common indexes — such as the Standard & Poor's 500 for the equity component and the Barclays Capital Aggregate for fixed income — Ms. Brown came up with a rough estimate of how market forces affected the change in asset mix between 2007 and 2009.
She said market forces could explain most of the change in the equity asset mix, adding that about 4.6 percentage points of the total change might be due to participants moving out of equities. “People move too late,” she said. As for fixed income, she estimated about 3 percentage points of the gain between 2007 and 2009 was due to participants' moving their money.
Her calculations indicated that the change in stable value during this period could be attributed to market activity.
“I think it's a positive that we saw such little movement (by participants),” she said. “I hope people understand that this is retirement and that they're in it for the long haul.”