Defined contribution investment-only assets are due to surpass $4 trillion by 2018, new research reveals.
A new report “DC Market Sizing & Outlook 2013,” published by Strategic Insight, pegs DCIO plan assets at $2.8 trillion as of year-end 2012. Proprietary assets, or those managed by a record-keeper’s affiliated investment manager, represented 46 percent of DC assets at the close of 2012.
The Investment Company Institute estimates the defined contribution market to account for $5.1 trillion at year-end 2012, $2.9 trillion of which was allocated to mutual funds.
“The growth of independent record-keepers and loosening of proprietary fund requirements on platforms with affiliated managers [are contributing to the DCIO’s] market expansion,” says Bridget Bearden, a Strategic Insight research analyst and author of the report.
The study provides defined contribution market sizing and forecasts by plan type, plan size and vehicle structure, plus findings from an annual DCIO Manager Survey, fielded during the second quarter of 2013. Survey findings reflect 36 participants, representing $1.5 trillion in DCIO assets as of year-end 2012.
The market share of target dates within DC plans is expected to continue its growth trend (from 5 percent of all DC mutual fund assets in 2007 to 12 percent in 2012) as more plan sponsors turn to the strategy as a qualified default investment alternative (QDIA), the report adds. Across distribution channels, target-date mutual funds are projected to grow to $1.2 trillion over the next five years, more than twice the June 2013 assets of $534 billion.
Other reports also note rises — though their estimates vary from Strategic Insight’s — in DC plan assets. Among them, a study from MillionaireCorner.com, a unit of Spectrem Group LLC, which pegs DC plan assets at $2 trillion in 2012, up from $1.9 trillion in 2011.
Separately, a report from the Employee Benefits Research Institute reveals that at year-ended 2011, 13 percent of assets in EBRI’s ICI 401(k) database were invested in target-date funds and 39 percent of 401(k) participants held target-date funds.
Also known as lifecycle funds, target-date funds offer a diversified portfolio that automatically rebalances to be more focused on income over time.
Index strategies as a percent of total DC mutual funds have steadily increased their share to 13 percent as of 2012, up from a 10 percent in 2007. As a percent of all DC mutual funds, index strategies are anticipated to expand to nearly 17 percent by 2018, growing to $622 billion, the report states.
Bearden notes that “cost sensitivity and perceptions of certain asset classes being commoditized are two drivers for expansion of index strategies within DC.”