Vanguard overthrew Fidelity, becoming the largest manager of target-date assets in defined contribution plans, Pensions & Investments' data show.
As of June 30, Vanguard Group Inc., Malvern, Pa., managed $180.9 billion in proprietary target-date strategies for defined contribution plans, a 41.6% increase from a year earlier and $14.44 billion more than Boston-based Fidelity Investments. Fidelity reported $166.46 billion as of the same date, up 12% from the previous year.
Earlier, Vanguard had leaped over Fidelity to become the largest manager of U.S. defined contribution assets (Pensions & Investments, June 6).
Fidelity still ranked No. 1 among managers of defined contribution assets in mutual funds, with $547.5 billion, up 13% from the previous survey. Fidelity has ranked first since P&I started the survey in 1994. Vanguard remained in second place in that ranking, but narrowed the gap, with $526.8 billion, up 19.4%. In the year-earlier survey, Vanguard trailed Fidelity by $44 billion.
“We're seeing real accelerated growth within the defined contribution channel,” said Chris McIsaac, managing director of the institutional investor group at Vanguard.
“The trend of unbundling record keeping from investment management over the past 10 years has allowed plan sponsors to choose the funds as they see fit, independent of who they choose as their record keeper,” Mr. McIsaac explained. “That's opened up a lot of opportunities for a lot of investment managers.”
This trend of unbundling, Mr. McIsaac said, has in turn led to defined contribution plans moving toward index funds and target-date funds. Vanguard has benefited from this trend.
Mathew Jensen, director of target-date strategies at Fidelity Investments, said in an e-mailed response that Fidelity has “seen a real focus by plan sponsors on understanding and evaluating the investment objective, underlying assumptions, investment process and glidepath construction.
“We've also seen an increased focus on designing the defined contribution plan for specific investor outcomes to help ensure investors can maintain a 25- to 30-year retirement,” Mr. Jensen added.
Vanguard's jump in target-date assets is part of an overall growth among those strategies.
The top 20 managers of proprietary target-date strategies used by DC plans in P&I's survey had a total of $793 billion in DC assets as of June 30, up 32% from the previous year.
“Although I see a lot of discussion (among DC plans) about doing custom target-date funds, we're still seeing the preponderance of plan sponsors using off-the-shelf target-date solutions,” said Jennifer Flodin, a senior consultant and defined contribution practice leader at Plan Sponsor Advisors in Chicago. “Even plans that could do custom target-date funds don't, because there's a perceived enhanced risk ... given all the moving parts from an operational and cost perspective.”
Ms. Flodin added, however, that it is possible to “outsource a fair number of the risks.”
Target-date funds “meet the needs of plan sponsors and they're an effective way for managers to deliver a diversified portfolio to the end investor,” said Scott David, head of U.S. investments services for T. Rowe Price Group Inc., Baltimore. T. Rowe's proprietary target-date strategies jumped 38% to $114.5 billion as of June 30, placing fourth in that ranking.
“Between auto enrollment and auto escalation, you're seeing a pretty big driver of DC assets,” said Lori Lucas, the Chicago-based executive vice president and defined contribution practice leader at Callan Associates Inc. “Target-date funds are really the receptacles for DC assets coming from automatic enrollment.”