Goldman offers DC plans an alternative with fund

By Jeff Benjamin

Oct 21, 2012 @ 12:01 am (Updated 4:46 pm) EST

In the latest effort to address some of the asset allocation challenges and missteps seen on most employer-sponsored defined-contribution plans, Goldman Sachs Asset Management has launched an alternative strategy specifically for DC plans.

Although the name might not make it clear, the new Goldman Sachs Retirement Portfolio Completion Fund (GRPOX) could go a long way toward moving retirement plans away from lopsided and low-performing allocations in domestic equity.

Launched Oct. 1, the fund is being marketed as an alternative strategy that gives DC investors nontraditional options.

But even when there are some such options, investors tend to cling to what is most familiar.

For example, according to Callan Associates Inc., emerging-markets equities represent just 0.3% of all DC assets, and real estate investment trusts and Treasury inflation-protected securities combined represent just 0.6% of all DC assets.

“Traditionally, there has not been a lot of alternative options in DC plans because of the challenges of explaining them to retail clients and structuring them in a portfolio,” said Ryan Tagal, vice president of product development at Envestnet.

The Goldman Sachs fund tries to address those challenges with a low-key strategy that doesn't necessarily trumpet the alternatives component, which can be off-putting to some plan sponsors and investors.

The fund, which is quantitatively managed, employs a simplified risk parity model that is designed to spread risk evenly across seven asset classes.

INDEX-BASED INVESTMENTS

The weightings, which will be re-balanced every six months, will include 20% in TIPS, emerging- markets credit, and replication of absolute-return hedge funds. Beyond that, there is 18% in high-yield credit, 10% in commodities and 6% each in global REITs and emerging-markets equity.

All underlying allocations are to index-based investments, making it a passive strategy, which should help ease the nerves of retirement plan sponsors. The use of indexes also helps keep the fees at 58 basis points for most retirement plan participants.

If the fund is purchased directly, outside a retirement account, the fees on the retail-class shares are 98 basis points.

“We put it all in one portfolio to reduce the volatility of the stand-alone asset classes,” said Fred Conley, Goldman Sachs' head of institutional DC sales.

“Market volatility and low interest rates make it challenging for DC participants to establish a risk- managed investment portfolio,” said Phil Callahan, managing director in GSAM's retirement services group.

The fund was designed after considering where most retirement plan assets are concentrated, which is domestic equity, other developed-markets equity and fixed income, he said.

“We wanted to offer new sources of growth and we wanted something with low correlation to where a lot of DC plan assets are concentrated,” Mr. Callahan said.

jbenjamin@investmentnews.com Twitter: @jeff_benjamin

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