Plan Sponsors Consider CITs for Private Market Exposure
Defined contribution (DC) plan sponsors are interested in using collective investment trusts (CITs) for private market strategies, yet little asset managers have adapted these strategies in their infrastructure.
A new report from Cerulli Associates finds that industry participants want to add alternative strategies to DC plans, but not on plan menus for participants to select. Rather, plan sponsors want to add them into professionally managed accounts including target-date funds (TDFs) or CITs.
Cerulli’s research notes how a growing number of respondents prefer CITs for its flexibility, reduced operating costs, and potential for fee negotiability. The number of assets in the funds has steadily risen in past years—now accounting for 38% of total 401(k) channel assets. This is up 30% compared to the end of 2019, Cerulli finds.
To scale plan sponsor interest, asset managers have incorporated a series of sub-asset classes to DC plans, including private real estate, at 36% of asset managers. Another 23% plan to offer this strategy to their DC clients in the future.
Others expect to see private credit as a potential area of adoption in DC plans, according to Cerulli. While 20% of asset managers currently offer this strategy, 48% say they plan on adding it in the future.
Brendan Powers, director at Cerulli, observes an influx of asset managers who are modifying their strategies by incorporating liquidity and providing recurrent valuations. “These elements are crucial for managers to get right as they look to meet the expectations of plan sponsors, intermediaries, and recordkeepers,” he said.
He adds that in the future, asset managers will need to prove how strategies can improve risk-adjusted returns and offer better outcomes for participants, as interest and potential adoption of private markets increases.
“Asset managers looking to offer alternatives in the DC space must be able to ensure the quality of the product they are providing to both new and existing clients will remain high as they expand their offerings,” Powers concluded.
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.
