The establishment’s rattled.
It might seem like a campaign update but actually refers to the growing popularity of collective investment trusts and liquid alternative investments in 401(k)s. The reason, of course, is the potentially lower fees and non-correlated asset classes they offer. The trend got a further boost Thursday with the release of new rules from the SEC regarding mutual fund liquidity and reporting.
“With more than $2.5 trillion in assets as of year-end 2015, CITs have become an increasingly popular vehicle for institutional investors in both the defined benefit (DB) and defined contribution (DC) market places,” according to Chris Mason, senior analyst at Cerulli Associates. “These vehicles serve as a viable alternative and potentially more cost-effective options for institutional investors to accomplish their investment goals.”
Cerulli determined that plan sponsors, consultants, and record keepers are now more familiar with some of the basic operational attributes of CITs than in years past.
“CITs have a variety of unique characteristics that often can be misunderstood, leading many CIT managers to focus on efforts to increase awareness and education of the vehicle,” according to the Boston-based research behemoth. “Likely the biggest differentiator from mutual funds and exchange-traded funds is that CITs can only be used in qualified retirement plans.”
Despite increased awareness and data availability on third-party platforms such as Morningstar Direct, issues still remain.
“Many who work with CITs cite a variety of issues regarding the third-party data available on these funds,” Mason added. “Since the data is self-reported and not mandatory, some firms choose not to report certain elements of their CITs. This lack of mandatory and homogeneous reporting creates difficulties for analysts seeking a comprehensive picture of the market.”
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.
