Vanguard sees continued increases in assets going to target date funds, which will be a “dominant theme” for the firm's defined-contribution business, according to Chris McIsaac, managing director and head of Vanguard's institutional investor group.
DC assets under management jumped to a record $4.23 trillion in 2012, nearly 12% more than the previous record of $3.78 trillion in 2011, according to sister publication Pensions & Investments' latest survey of money managers who run DC assets. It was based on responses from 242 companies; the 2011 survey covered 261 companies.
AUM GREW AT BIG MANAGERS
The five money managers with the greatest amount of assets from defined-contribution plans accounted for about 47.7% of total DC assets under management in the P&I survey, and the top 10 represented 68.5%.
All of the top 10 managers enjoyed AUM gains, but some grew faster than others, leading to several shifts in the rankings. The Vanguard Group Inc. advanced to second place, from third, thanks to a 14.1% gain to $429.9 billion. Vanguard swapped places with TIAA-CREF, whose AUM rose 4.2% to $425.9 billion.
Vanguard's gains reflect a “broader adoption” of index funds and target date funds, Mr. McIsaac said.
Last year, 66% of new money going into Vanguard's defined-contribution business was invested in target date funds and trusts, he said. During the first six months of 2013, he said, 73% of participants' money entering DC plans was invested in target date funds.
“This is a dominant theme for our DC business,” Mr. McIsaac said. In addition, he said more DC plans are offering index funds as part of their core investment lineup.
Vanguard still has a long way to go to catch up to Fidelity Investments; the latter's $523.9 billion in AUM represented a 10.7% improvement from 2011.
Among corporate DC clients, 25% of new retirement money going into Fidelity products was in blended investments in 2008, rising to 37% last year and 39% in the first quarter of 2013. Meanwhile, conservative investments — fixed income and stable value — received 18% of new money last year, versus 19% in 2008, she said. The Pension Protection Act of 2006 and the role of qualified default investment alternatives are “driving much” of the gains in blended investments, she said.
Prudential Retirement, a unit of Prudential Financial Inc., continued its march up the rankings ladder as it forged into fifth place with $223.2 billion, up 17.2% from its sixth-place finish in 2011. Prudential was in seventh place in 2010, eighth place in 2009 and ninth place in 2008.
Despite its steady advance over the years, Prudential will have to produce spectacular gains — or buy a company — to catch No. 4 BlackRock Inc., which has moved within striking distance of No. 3 TIAA-CREF. BlackRock posted AUM of $415.3 billion, up 18.3% from 2011.
Prudential traded places with Capital Research and Management Inc., which bounced back from a poor 2011 and grew 9.2% to $214.6 billion, placing it in sixth place.
The rest of the top 10 rankings remained the same, as each manager posted a gain over 2011: Seventh-place Pacific Investment Management Co. LLC had AUM of $206.9 billion, up 19.2%; State Street Global Advisors hung on to eighth place with AUM of $194.1 billion, up 15.6%; ninth-place T. Rowe Price Group Inc. had $183.6 billion, up 25.5%; and Invesco Ltd. remained in 10th with $81.9 billion, up 8.6%.
Consultant Donald Stone said the decline in the overall stable-value allocation is most likely because investors are putting more into equities rather than less into stable value. “We're not seeing any change in behavior at the plan level” among clients, said Mr. Stone, managing partner and chief investment officer at Plan Sponsor Advisors. “We're not seeing anyone stepping away from stable value.”
Mr. Stone said he detected some movement to emerging- markets equity and developed-international-markets equity from domestic equity. As for the fixed-income-allocation gain in 2012, Mr. Stone added that although “a lot of investors moved into bonds in 2012, this year hasn't been so good” for bond funds.
Mr. Stone also suggested that fixed-income allocations are rising as more people choose target date funds, which adjust individual allocations to more-conservative investments as participants grow older.
Robert Steyer is a reporter at sister publication Pensions & Investments.