The never-ending fight for lower fees and the fear of fee-related lawsuits have pushed passive investments ahead of active management among large defined contribution plans in 2015 - the first time since Pensions & Investments began tracking data from the 100 biggest corporate plans.
Among companies identifying management styles, P&I found passive management accounted for 51.8% of assets in 2015, while 48.2% were actively managed. That's a flip from 2014, when active management accounted for 51.5% and passive, 48.5%. In 2013, the active to passive split was 54.7% and 45.3%.
P&I has analyzed data since 2013 covering U.S.-based companies, both public and private, but excluding mutual companies. Separate company DC plans in Puerto Rico are excluded. The latest data is based on companies' filings with the Securities and Exchange Commission and Department of Labor, primarily for 2015 plan years.
P&I also found that collective investment trusts took a bigger piece of the asset-allocation pie, as DC consultants noted that fees are sparking plan executives' interest in CITs at the expense of mutual funds. The actions identified in the P&I data match observations of DC experts, who said these trends have marched past 2015 and will advance in the near future.
The growth in passively managed assets and CITs occurred as total DC assets slipped by less than 1% to $1.118 trillion in 2015 from $1.128 trillion in 2014.
“It's not a surprise due to all of the litigation,” said consultant Jennifer Flodin, referring to greater allocations to passively managed investments. She was referring to lawsuits accusing plan sponsors of breaching their fiduciary duties by not using or considering lower-cost investment options.
In their investment lineups, “sponsors have been offering a passive sleeve to give more choice,” said Ms. Flodin, the Chicago-based managing director and co-DC practice leader for Pavilion Advisory Group Inc.