BlackRock extends reach into retirement business with new funds, indexes

Money manager turns focus to retirement income, distribution vs. accumulation

Feb 12, 2014 @ 7:33 am

By Darla Mercado

BlackRock Inc. is pushing further into the retirement income sphere, this time launching a lineup of bond funds and indexes that try to measure the cost of lifetime income.

Back in July, the asset management juggernaut filed a lineup of bond funds with the Securities and Exchange Commission, dubbing this new product the BlackRock CoRI Funds. The bond funds primarily invest in corporate bonds, U.S. government bonds and Treasuries.

The funds themselves, which opened for investing on Jan. 31, have maturity dates ranging from 2015 to 2023, and they're aimed at clients aged 55 to 64.

BlackRock also launched a series of indexes with corresponding maturity dates, which will track the changes over time to the expected median cost of lifetime income for a person turning 65 at the target year. The funds will aim to track the indexes.

Investors and advisers can track the indexes on the New York Stock Exchange to determine how much estimated income the client will get from his or her retirement savings or the amount the client needs to save in order to reach a set amount of income.

The initial launch of the indexes last summer, followed by the opening of the funds, are part of a greater strategy by BlackRock in which the company is putting more emphasis on life at and after retirement, as opposed to concentrating merely on accumulation.

“We're seeing four stages in the investor lifecycle: accumulation up to age 65; pre-retirement — where you see the retirement horizon, but you still have enough time to correct course; early retirement; and late retirement. CoRI is critical in pre-retirement and early retirement.” said Chip Castille, head of BlackRock's defined-contribution business and U.S. retirement group

At the target date, investors have a couple of options. They can choose to stay in the fund, which will liquidate over the course of 10 years. They can also opt to liquidate their holdings and work with an adviser to move into a retirement income product, such as an annuity.

The goal of the fund isn't to compete with the insurance industry, but rather to complement the many types of annuities that are already out there, Mr. Castille noted.

“You're getting ready for the annuity purchase; CoRI shows your ability to purchase lifetime income,” he said. Mr. Castille also said that for the first 10 years in retirement, investors can receive income payouts, get yields of 4% in today's rate environment and still maintain the ability to buy the annuity at some point in the future. As a bond fund and not an insurance product, CoRI has no guarantees.

The development of the suite is the latest salvo from the asset management side on distributing retirement income, according to Geoff Bobroff, a mutual fund industry consultant. Life insurers have dominated that battle against asset managers due to carriers' ability to provide guaranteed income.

“The [asset management] industry continues to fuss with some kind of payout product, but nothing has really worked to attract the attention of the individual,” Mr. Bobroff said. “Without a guarantee and with the current level of interest rates, it's hard to see people committing the necessary level of assets to buy a stream of income.”

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