SAN FRANCISCO -- Barclays Global Investors is planning a full frontal assault on the biggest defined contribution plan markets.
BGI is finally getting serious about the large end of the defined contribution plan market by creating a dedicated team to market its existing indexed and enhanced indexed offerings in separate and commingled accounts and mutual funds to plans with 1,000 or more participants.
Late last year, Barclays lured Richard Malconian away from Fidelity Investments, Boston, named him managing director and head of defined contribution plan services and charged him with creating the company's first dedicated 401(k) plan marketing team.
The broadening of BGI's marketing focus to include a serious stab at the defined contribution market is "absolutely necessary," said consultant Peter Starr, of Cerulli Associates Inc., Boston, as the pool of defined benefit plans BGI has traditionally relied on for business shrinks or is converted into defined contribution plan vehicles.
BGI exited the 401(k) plan business in 1998, when it sold its bundled program, Masterworks, and client book to Merrill Lynch & Co. Inc., New York.
But BGI never stopped managing defined contribution money on an investment-only basis. It runs $75 billion for 100 such plans, including all of the $64 billion of the Federal Retirement Thrift Board, Washington. BGI also ranked among the top five vendors of 401(k) plan services in terms of assets under management, according to Pensions & Investments' annual survey of money managers (May 18).
Marketing starts to matter
All that defined contribution plan business, managed mainly in indexed commingled fund vehicles, was won essentially by word-of-mouth and through cross selling to its client base of large-end defined benefit plans, Mr. Malconian said.
"Essentially, we've never had a sales team before. People don't even realize that we are in the defined contribution plan business in such a big way already," said Lee Harbert, managing director of new business development.
Faced with the prospect of at least some of its large government defined benefit plan client base converting to defined contribution plans, Barclays is ramping up its marketing efforts. BGI was the largest manager of internally managed defined benefit plan assets in P&I's annual directory of money managers, with almost $330 billion under management.
BGI officials are also intrigued by estimates that put the total defined contribution plan market at more than $950 billion.
Important to company
"I would think the mother ship in the U.K. would want BGI to significantly broaden its focus, to move away from a reliance on the defined benefit plan market and to pitch its services to all kinds of defined contribution plans -- 401(k), 403(b), 457 and profit sharing plans, for example. I think Patty Dunn, now heading the company by herself, has clearly signaled that the defined contribution plan market is very important to BGI. They have to look to new markets and can't sit fat and happy on the big pool of defined benefit plan assets that is contracting beneath them," Cerulli's Mr. Starr said.
BGI will target two marketing channels: selling directly to large defined contribution plans; and selling through financial intermediaries such as record keeping alliances, insurance companies and other money managers' defined contribution plan programs. BGI will eventually be able to serve mid-sized plans, Mr. Harbert said, on an investment-only basis through the intermediary channel, where record keeping and administrative services will be provided by a strategic partner.
Barclays has no intention of re-entering the record keeping business and will remain an investment-only vendor to defined contribution plans, Mr. Malconian stressed.
BGI also plans to assist defined contribution plan sponsors and intermediary partnerships with investment education and is deliberating now on how to develop those services, perhaps in partnership with external investment educators.
BGI manages only indexed and enhanced index strategies and will offer institutional clients a choice of separate and commingled account and mutual fund management.
"The 401(k) plan market has evolved. It's in the third wave, where the emphasis on retail funds and retail pricing is giving way to institutionalization and institutional pricing. Plan sponsors are looking for an open architecture for their plans and institutional pricing. That evolution suits BGI's products and strategies extremely well," Mr. Malconian said.
BGI also aims to capitalize on the growing appetite of retirement plans for indexed options, BGI's primary product line, he said.
BGI spirited away Trennis Jones, director of human relations and administrator of the $10 billion 403(b) plan for the University of Texas System, Austin, to head marketing efforts to public defined contribution plans, such as 403(b) plans, and to defined benefit plans undergoing conversion to a defined contribution model.