Collective investment trusts, seen by some as a cheaper alternative to mutual funds in the retirement plan space, grew sharply in 2016, according to global research and consulting firm Cerulli Associates. The Boston-based Cerulli pegged assets in CITs at $2.8 trillion, representing an 11.6 annual increase.
“Many managers are revisiting their product offerings and considering how CITs could play a role in their business based on the increasing demand for lower-cost vehicles among institutions,” Christopher Mason, senior analyst at Cerulli, said in a statement. “This has caused many firms to explore the possibility of launching CITs to help meet this demand and remain competitive in the marketplace.”
Institutional investors are gradually looking to commingled vehicles because of their heightened sensitivity about fees paid to investment managers, he added. Because CITs can often be priced lower than mutual funds, they serve as an attractive option for those institutions that are permitted to invest in them.
“Cerulli believes the primary reason an institution seeks out a CIT is the fact that it can often gain more favorable pricing compared to using other vehicles. Nearly 95 percent of plan sponsors value the cost savings compared to mutual funds as one of the most important attributes of CITs. Similarly, roughly 90 percent of consultants feel that the cost savings compared to mutual funds is a very important attribute.”
Managers that do not offer CITs should consider doing so, he advised, particularly for asset classes or strategies in which cost savings can be passed on to the end-investor.
Cerulli’s latest report, “North American Institutional Markets 2017: Strategies for Implementing Customized Services Across Client Segments,” provides coverage of the rise of institutional custom solutions, particularly liability-driven investing among corporate defined benefit plans, the increased use and adoption of CITs, and the ongoing influence of investment consultants.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
