CITs are finally on the rise—only 75 years after their introduction.
Part of the reason for the renewed interest, according to Sharon Ennis, a senior vice president with Reliance Trust, is the industry’s hyper-focus on fees, as well as operational issues.
“In the early 1990s, banks took their assets out of collective investment trusts and put them in 40 Act funds,” she recently explained. “In 2000, the SEC said they could now be processed on platforms, and so that streamline in operational ease, combined with demand for lower fees, means they’re now moving in the opposite direction.”
New research from Denver-based fund provider ALPS appears to back that view, and notes the “fundamental changes driving the growth of collective investment trusts.”
The research concludes that CITs could become the dominant investment vehicle in the 401k defined contribution retirement market.
“CITs are already outpacing the overall retirement market, growing at a 7-year CAGR of 14.4 percent, compared to less than 9 percent for the overall retirement market over the same time period,” the study finds. “CITs could reach $3.1 trillion in total retirement assets by the end of 2018, up from $1.9 trillion at the end of 2015.”
However, it further notes that CITs represented less than 14 percent of assets in all CIT-eligible plans in 2015, leaving ample headroom for the investment structure to grow in the years to come.
“Most plan sponsors, acting as fiduciaries, are effectively considering CITs one of the investment option sleeves for their 401(k) plans as CITs have a structural cost advantage over mutual funds, costing less from both a compliance and marketing standpoint, the company adds.
Lastly, relative cost savings of CITs over institutional and R6 class mutual funds were estimated to be in the 10 to 30 basis point range.
“ALPS’ comprehensive CIT servicing solution seeks to deliver an efficient way for Investment Managers to launch and manage assets in a CIT structure,” Lisa Mougin, senior vice president and director of sales and client relationship management at ALPS, said in a statement. “We believe the continued regulatory focus on fees and fiduciary oversight positions CITs for continued growth, particularly in the defined contribution space.”