BlackRock's target-date strategies held $383.4 billion in assets at the end of 2021, up 23.7% billion from the previous year, according to P&I data.
James Veneruso, New York-based senior defined contribution strategist at Legal & General Investment Management America Inc., said he will be watching to see how target-date fund managers react to high inflation moving forward.
Inflation-sensitive asset classes, like TIPS, real estate investment trusts and commodities have "been a hallmark of many target-dates for a while," Mr. Veneruso said. "It will be interesting to see, though, if those allocations increase. Because I feel like they were for a while decreasing because there wasn't inflation and there's a cost associated with those strategies when there's not. It remains to be seen in the coming year perhaps if target-date managers, when they re-evaluate their asset allocation, make any shifts."
Target-date fund strategies are usually re-evaluated on an annual basis, typically later in a calendar year, Mr. O'Meara said. "Given where the market turned this year, we haven't really seen this year's market been reflected in target-date fund strategies," he added.
Joshua Cohen, Chicago-based head of client solutions at PGIM DC Solutions at PGIM Inc., the investment management businesses of Prudential Financial Inc., which had $299.4 billion in U.S. institutional tax-exempt defined contribution assets at the end of 2021, up 3.9% from the previous year, according to P&I data, said there's now more of a demand from "participants and maybe plan sponsors and consultants for more inflation-sensitive type solutions."
For many years, inflation-sensitive assets "haven't performed really well compared to the equity markets, but those are the asset classes that have provided really some protection for inflation and now you are seeing more interest in things like real estate and commodities," Mr. Cohen said.
Prior to the rise in inflation, U.S. institutional tax-exempt DC assets in real estate equity strategies were up 42.2% year-over-year to $7.5 billion, as of Dec. 31, according to P&I data. Moreover, REITs saw a 19.8% increase in 2021 over the prior year to $33.2 billion, and inflation-protected securities had a 7.6% increase in 2021 to $82.2 billion.
Drew Carrington, San Mateo, Calif.-based senior vice president, head of institutional defined contribution at Franklin Templeton Investments, which had $28 billion in U.S. institutional tax-exempt DC assets as of Dec. 31, according to P&I data, said plan sponsors are keener to listen about incorporating more diverse asset classes in their plan lineups due to the recent market volatility and inflation.
"Some of the themes we've been talking to plan sponsors about are resonating today in a way that maybe they weren't a year ago," Mr. Carrington said. He added that private real estate is a category Franklin Templeton has discussed with plan sponsors in recent years, and in 2022, private real estate has had positive returns while stocks and bonds were negative.
"The diversification story that has always held true for institutional investors about real estate … it ought to apply in defined contribution plans, too, in a professionally managed setting," he said.