Christopher Thompson, the Stamford, Conn.-based director of investments for Willis Towers Watson PLC, also prefers asset managers that don't bite off more than they can chew.
"I don't want them to aspire to be a great multiproduct provider," he said. "Stick with what you are doing if you have a good product."
His firm recommends "investment boutiques" to clients, focusing on "small shops that do one thing and one thing well."
Although boutique firms can offer aggressive investment products, Mr. Thompson looks for managers that are "DC friendly" — those that recognize that sponsors "tend to be risk-averse."
Willis Towers Watson has recommended domestic small-cap managers with AUM in the $3 billion to $4 billion range as well as large-cap domestic and international managers with AUM in the $5 billion to $30 billion range.
The keys to DC asset growth for William Blair & Co., Chicago, has been U.S. equity investments, which account for about 60% of institutional DC AUM. Domestic large-cap growth, domestic small/midcap growth and domestic small/midcap core equity are the major contributors, said Robert Duwa, the Chicago-based partner and head of North America distribution. His firm defines small/midcap core equity as a fusion of growth and value strategies benchmarked to the Russell 2500 index.
William Blair & Co. had U.S. DC AUM of $11.5 billion as of Dec. 31, reflecting a $26.5% gain over one year and a 109.9% gain over the past five years, according to P&I data.
"We are not trying to be everything to everyone," Mr. Duwa said. "We are not trying to be a supermarket."
His firm is "fully 100% committed to active management," and it seeks sponsor clients of all sizes.
To increase its attractiveness, the firm has expanded its CITs by reducing the minimum investment amount in 2019 to $1 million from $20 million needed by sponsors. In the last 18 months, the firm also added a mutual fund share class that excludes revenue sharing.
Issuing new, lower-fee mutual fund share classes and offering funds without revenue sharing are strategies by some asset managers to boost sales, said Brad Long, partner and research director for global markets at Fiducient Advisors, Chicago. This is common practice that isn't unique to small managers "but still important and a trend," Mr. Long said.
"Smaller managers are comprised mostly of active management and therefore the need to compete on fees is even more acute since they do not have a supplementary revenue source of passive investing," he said.
Sponsors' continuing sensitivity to fees is "a primary driver" for these efforts, he said. These share classes "would generally offer lower investment costs and greater transparency, both which may help plans serve participants," he added.
Another strategy for managers is offering adviser managed accounts. "To the extent they offer a product directly it would increase AUM directly," Mr. Long said. "If they are simply the backbone of the account and it was offered through a third party such as an RIA or consultant, then it would not increase AUM explicitly, but would increase revenue for the firm."