More than half (54%) of new Target-Date Fund series introduced since the start of 2018 are the product of co-manufacturing—a fast-growing trend in the industry that is the subject of Sway Research’s latest research report, released today.
As of midyear 2024, 37 of the 143 Target-Date series tracked by Sway Research were formed via a comanufacturing arrangement and thus exclusive to a specific provider.
The new report, “The State of the Target-Date Market: Mid-Year 2024,” says the trend has fueled a surge in the development of these age-tied investment vehicles into which participants in defined contribution (DC) plans are often auto-enrolled via their employer-sponsored retirement plan.
Co-manufacturing is a practice in which asset managers join with investment distributors, such as DC platforms and DC plan advisories, and, in most instances, a trust company, to create investment products that are exclusive to the clients of the platform and/or advisory.
As of midyear 2024, 37 of the 143 Target-Date series tracked by Sway Research were formed via a comanufacturing arrangement and thus exclusive to a specific provider. However, given the newness of these offerings, co-manufactured Target-Dates held just $61 billion of assets as of June 30, 2024, which was less than 2% of total Target-Date assets.
The report notes that Great Gray Trust Company (whose CIT business was formerly in Wilmington Trust) and flexPATH Strategies are “two sparks that ignited the trend toward co-manufacturing.”
The two companies have created a strategic alliance where Great Gray Trust Company is the trustee of CITs and hires flexPATH Strategies as sub-advisor to implement the TDF strategy due to securities law exemptions that CITs be bank-maintained. flexPATH Strategies currently oversees 13 Target-Date series identified by Sway Research as being co-manufactured and exclusive. Assets in the 13 series totaled $30 billion on June 30 (49% of assets held in co-manufactured Target-Dates).
The report finds flexPATH Strategies’ IndexSelect Target-Date series is the largest co-manufactured series on the market, holding $8.5 billion of assets at the midpoint of 2024. Sub-advised by flexPATH and exclusive to the clients of Empower Retirement, IndexSelect features underlying investments managed by BlackRock, stable-value investments via the Great Gray Trust Stable Value Fund, for which Great Gray is trustee, and a Guaranteed Investment Contract issued by Empower.
A collective investment trust (CIT) is the vehicle upon which 33 of the 37 co-manufactured Target-Date series tracked by Sway Research were built. Great Gray Trust Company provides trust services to 18 co-manufactured Target-Date series. Assets in these series totaled $36 billion—59% of the total invested in co-manufactured Target-Date series as of June 30, 2024.
TDF assets climb in first half of 2024
Assets held in Target-Date series climbed 9.6% in the first half of 2024, reaching $3.78 trillion as CITs overtook mutual funds to become the largest holder of Target-Date assets (by a difference of just $3 billion). Including another $295 billion invested in custom solutions, assets in Target-Date products tracked by Sway totaled $4.08 trillion as of June 30, 2024.
Industry leader Vanguard Group surpassed $1.4 trillion of Target-Date assets during the first half of the year, while Fidelity Investments followed in second place with $544 billion. BlackRock, which was third in Target Date assets with $471 billion, launched LifePath Paycheck—one of a growing number of Target-Date series to feature an income component, a trend that Sway will profile in-depth in its year-end “The State of the Target-Date Market” report to be published in February 2025.
As of June 30, LifePath Paycheck had approximately $13 billion in AUM. To date, 15 plan sponsors, with plans totaling $27 billion in target date assets, have made or are planning to make LifePath Paycheck available to 500,000 employees. Also on trend, Nuveen introduced its Lifecycle Income Index series in the first half of the year.
In total, seven Target-Date series were launched in the first half of 2024, all of which utilize CITs instead of mutual funds, which once dominated Target-Date products. While mutual fund-based Target-Date series have declined from 61 products at the outset of this decade to just 50 today, CIT-based solutions expanded from 72 offerings at the start of 2020 to 92 as of mid-year 2024.
Three co-manufactured Target-Date series were launched in the first six months of 2024 (out of 7 series introduced). DynamicSelect is exclusive to Empower clients and features investments managed by BlackRock, while stable-value investments are provided by Great Gray Stable Value Fund. The other two series feature Capital Group’s American Funds as underlying investments.
The RetirementTrack American Funds series is exclusive to clients of OneAmerica, while the RetirePilot American Funds series is exclusive to clients of Principal Financial. Capital Group, the fifth largest holder of Target-Date assets with $316 billion as of mid-year (behind T. Rowe Price in 4th with $457 billion), also recently seeded its first Hybrid Target-Date series, which features American Funds active portfolios alongside passive investments from BlackRock and SSgA.
Sway’s annual in-depth study of the Target-Date market is based on a proprietary database of mutual fund and collective investment trust Target-Date portfolio and asset data, which included 143 Target-Date solutions with assets as of mid-year 2024, spread across more than 6,000 mutual fund share classes and CITs. This data is harnessed to provide insights into shifts within the $4 trillion Target-Date market, including across products and providers, investment vehicles, underlying investments, management styles, and glide paths.
SEE ALSO:
• BlackRock’s LifePath Paycheck Now Available in DC Plans
• Hybrid Annuity TDFs Ideal for Specific Investors