The Defined Contribution Alternatives Association (DCALTA) has partnered with hedge fund consultant PivotalPath to release a series of nine hedge fund indices for defined contribution retirement plans.
Citing growth in the defined contribution arena, coupled with “massive” contributions to target date funds prompted the need for quality and transparent benchmarks.
According to the announcement, the indices will help plan sponsors and others to better assess market net-of-fee performance and volatility, while also assisting in risk management.
DCALTA is banking on the hope that alternative investments such as hedge funds, private equity and infrastructure will become common allocations within defined contribution portfolios, as they commonly exist in defined benefit pensions and endowments.
Jonathan Epstein, DCALTA’s President and Founder, noted that “the ever-increasing adoption of target date funds and near $10 trillion in defined contribution plans” created a growing need for plan fiduciaries to “rely on proper performance benchmarks.”
“For fiduciaries trying to accurately assess hedge fund market performance, the collection of consistent and quality data is paramount,” added Epstein.
The organizations noted that the indices will help the defined contribution community confidently benchmark their hedge funds by being able to answer the four key questions:
- What goes into the index?
- What is the methodology used to construct it?
- How is the information presented?
- Is there more to the index than the average?
The partnership will mark DCALTA’s first set of retirement indices focused on multiple hedge fund strategies, as well as a comprehensive hedge fund market composite. Michelle Rappa, Managing Director at Neuberger Berman and DCALTA Executive Committee Member, stated that the defined contribution plan industry has needed quality benchmarks and that addressing this need has been a longtime focus for the non-profit organization.
PivotalPath’s CEO Jon Caplis is equally bullish saying that current indices have made it difficult to accurately benchmark hedge fund portfolios.
“Our clients rely on our indices because the information we provide ultimately determines their overall hedge fund asset allocation, and whether or not they invest in or redeem from a manager,” said Caplis.
DCALTA’s work on behalf of defined contribution plan participants includes education, research and advocacy on the benefits and alternative investments options within a defined contribution framework.
Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.
