Defined contribution money managers reported a record
$7.09 trillion in U.S. institutional assets under management as of Dec. 31, up
17.4% from 2016, with the largest DC manager — Vanguard
Group Inc. — passing the $1 trillion mark for the first time, Pensions
& Investments' annual survey showed.
Managers' internally managed DC assets rose 16% to $6.18
trillion in the 12 months.
Among the 25 largest managers, most reported double-digit
increases in DC plan assets in 2017, and the rankings of the 10 largest
remained the same. In aggregate, the 10 largest managers reported $4.96
trillion in DC assets under management as of Dec. 31, up almost 22% from
year-end 2016. Assets increased 10.9% for that group in 2016.
Angelo Auriemma, director of DC investments and a senior
consultant at Chicago-based Pavilion
Advisory Group Inc., pointed to the continued growth of target-date
funds as a reason Vanguard and other large managers saw asset increases. Strong
market performance also gave a boost, DC consultants said.
Last year was "a pretty Goldilocks year in terms of
the total asset returns we saw for diversified portfolios that are
in DC plans," said Ben Taylor, San Francisco-based senior vice president
at Callan LLC.
When it came to the individual rankings, consultants were
not surprised to see the same names at the top.
Michael Volo, senior partner at Cammack Retirement
Group Inc. in Wellesley, Mass., said he believes consultants and managers who
are looking at minimum fund sizes, long-term track records and other factors as
part of their research are becoming "comfortable with a set of investment
"As these consulting firms grow, more of their
client bases grow, and more of (their) clients are using these same funds, and
it kind of has a domino effect," Mr. Volo said. Ultimately, this makes it
"harder for smaller investment managers to gain traction," he said.
David O'Meara, New-York based senior investment
consultant at Willis Towers Watson PLC, said the largest managers benefit from
having large teams dedicated to supporting their DC businesses.
According to P&I's latest survey, the
five largest DC managers — Vanguard, BlackRock (BLK) Inc. (BLK), Fidelity
Investments, Nuveen and T. Rowe
Price Associates (TROW) Inc. (TROW) — accounted for 51.5% of
the $7.09 trillion in DC AUM reported as of Dec. 31. The 10 largest managers
accounted for 69.9% of the total.
Vanguard — which continues to rank as the largest manager
of DC assets — reported $1.14 trillion in U.S. institutional tax-exempt DC
assets as of Dec. 31, a 26.6% increase from year-end 2016. Vanguard
is the first manager in P&I's survey to surpass $1 trillion in
defined contribution assets. The Malvern, Pa.-based firm also is close to
crossing the $1 trillion mark in internally managed DC assets, reporting
$998.75 billion as of Dec. 31.
Pavilion's Mr. Auriemma cited investor demand for low-cost,
passively managed target-date strategies as another contributor to Vanguard's
growth story. "If you have a plan that is not a 403(b) and is large
enough, you're getting down to single digits in terms of basis-point charges
for some of these vintages in the Vanguard target-date series, and that's
really attractive to plan sponsors," Mr. Auriemma said.
Along with attractive pricing, performance has driven the
demand for passively managed strategies, Mr. Auriemma said.
"Even though we're starting to see a little bit of a
sea change now, it (has) been a long run, particularly in U.S. equities, of
passive strategies outperforming the active ones. ... It (has) become a lot
more difficult to justify not being in an index series target-date-wise when
you see that fees can be significantly lower, and I haven't been getting any
alpha for a few years," he said.
According to a Morningstar Inc. survey of target-date
mutual funds released May 7, about 95% of the $70 billion in estimated net
inflows to target-date funds last year went to passively managed series. Since
2015, passive target-date net inflows have exceeded those for active series,
according to Morningstar's survey.
Martha King, managing director and head of Vanguard's
institutional investor group, said the firm benefited from the continued
adoption of target-date funds along with plan sponsors' search for low-cost,
high-quality investment options and its record-keeping business.
Plans hiring Vanguard as a record keeper generally have
offered Vanguard funds "to a very great extent," Ms. King said.
Passive helps BlackRock
BlackRock (BLK) also has benefited from
sponsor interest in passively managed options, Cammack's Mr. Volo said. The New
York-based firm held onto the No. 2 spot in 2017, with $855.15 billion in
overall DC AUM, up 23.5% from 2016.
Anne Ackerley, New York-based managing director and head
of U.S. Canada and defined contribution at BlackRock, said close to 50 large DC
plans and thousands of small plan clients hired BlackRock as a money manager in
2017, and the firm's target-date assets increased 35.3% to $190.44 billion. Last
year, the firm saw "a very large increase" in requests for custom
target-date mandates, Ms. Ackerley added.
"Custom target date allows you to be more specific
around the glidepath that you're providing your participants. ... I think it's
an evolution in the industry as employers think about how ... they get the best
outcomes for their participants."
Occupying the third spot on the DC ranking was
Boston-based Fidelity with $714.9 billion in DC assets, up 15.3% from 2016.
Rounding out the top five were New York-based Nuveen in
fourth place with $533.2 billion, a 25.4% increase; and T. Rowe Price, Baltimore,
up 20.5% to $402.6 billion, a 20.52% increase.
Among firms that ranked in the top 25 for the current and
previous year's surveys, two firms — Invesco (IVZ) and Goldman
Sachs Group (GS) Inc. — reported declines in
DC assets for the year.
Invesco's DC AUM dropped to $95.5 billion as of Dec. 31,
down nearly 3.4% from the end of 2016, while Goldman Sachs declined 2.7% to
"At Invesco, we have seen clients adjust their asset
allocations to increase their exposure to equities, and we expect that secular
shift in plan design to continue," said Invesco spokeswoman Jeaneen Terrio
in an email. She would not elaborate.
Goldman Sachs officials declined to comment.
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