Top 25 DC fund managers show 17% increase from 2009

The 25 defined-contribution money managers with the most mutual fund assets reported a combined total of $1.606 trillion as of Dec. 31, up 17% from a year earlier, according to sister publication Pensions & Investments' annual survey

It was the second straight year of solid gains, following a 28% rebound in 2009 from the 27% plunge the year before.

Healthy returns both for the equity and fixed-income markets facilitated that growth. For 2010, the S&P 500 rose 15.06%, while the broader Russell 3000 Index delivered a 16.93% return. The Morgan Stanley Capital International All Country World Index, meanwhile, rose 13.31%. The Barclays Capital Aggregate index rose 6.54%.

The rankings of the seven managers with the most DC-related mutual fund assets under management remained unchanged from 2009, despite a wide disparity in growth rates for those firms.

WHO’S ON TOP

Fidelity Investments, The Vanguard Group Inc. and Capital Research and Management Co. retained the top three spots, although only Vanguard managed to exceed the 17% aggregate gain for the top 25.

Vanguard’s DC-related mutual fund assets jumped 19% from the year before to $320.7 billion, almost double market leader Fidelity’s 10% gain to $433.8 billion. Capital Research, meanwhile, posted a 7.5% advance to $232.2 billion.

In fourth place, Pacific Investment Management Co. LLC enjoyed a surge in assets of 39% — or $30 billion — to $107.3 billion. However, roughly half of that gain was attributable to Pimco’s inclusion, for the first time, of A, C, D and R share class assets in its DC plan totals. Had those share classes been included for 2009, Pimco’s assets would have registered a 20% gain in 2010.

T. Rowe Price Group Inc.’s DC-related mutual fund assets rose 20% to $88.6 billion, placing it fifth. The Hartford Financial Services Group Inc. stood at sixth in DC-related mutual fund assets after a 23% gain, and BlackRock Inc. was seventh at $37.7 billion after an 11% rise.

A 10% increase in assets to $32.3 billion helped Wells Fargo claim eighth place from money market heavyweight Federated Investors Inc., which slipped to ninth with a 0.2% decline in assets to $30.88 billion.

Columbia Management Investment Advisers, which didn’t provide numbers for P&I’s 2009 survey, came in 10th with $24.8 billion in DC-related mutual fund assets, displacing OppenheimerFunds Inc., even as that firm posted a 19% gain to $24.2 billion.

SOLID MARKET GAINS

Executives with management firms enjoying relatively strong growth in 2010 cited solid market gains and continued interest in target date funds as contributing factors.

Growing interest in passive offerings — especially target-date indexed funds — continued to power gains for Vanguard in 2010, with growth both for the firm’s full-service and DC-investment-only businesses, said Barbara Fallon-Walsh, a principal with the firm’s institutional retirement plan services business.

Kevin Collins, a vice president and head of client service for T. Rowe Price Retirement Plan Services, said strong market gains coupled with internal growth — especially fueled by interest in T. Rowe’s target date product offerings — contributed to his firm’s 20% rise in DC mutual fund assets last year.

By the end of 2010, T. Rowe’s target date funds accounted for 39% of the firm’s total DC mutual fund assets, up from 36% at the end of 2009.

Net gains for Fidelity’s Freedom target date retirement series, meanwhile, came to $21.5 billion in 2010, or more than half of the firm’s $40 billion gain in DC-related mutual fund assets for the year.

Plan sponsors “continue to include the entire Freedom Fund lineup in their plans,” and their ranks grew in 2010, with Fidelity adding more than 400 new sponsors with a combined 786,000 participants, Chuck Black, the firm’s senior vice president of investment consulting, wrote in an e-mail.

P&I’s survey data showed assets in the top 25 target date offerings surging 35% from 2009 to $156.6 billion, or just over twice the pace of growth for overall assets.

TARGET DATE GAINS

Those gains left target date funds accounting for a 12% chunk of overall DC portfolios, up 1.7 percentage points from the year before. Among other gainers, domestic equity rose four-tenths of a percentage point to 43.8%, while domestic bonds added seven-tenths of a point to 14.7%.

At the other end of the spectrum, money market funds claimed a 7.3% share of DC assets, down 1.9 percentage points. International and global equities dropped six-tenths of a point to 13.4%, while balanced/ asset allocation funds dipped three-tenths of a point to 8.8%.

If target date funds remained the rising stars of the DC universe, Pimco’s Total Return bond fund cemented its stature as the king of the hill among individual funds, surging 22% from the year before to $91.1 billion — after adjusting the prior year’s figure to include A, C, D and R share class assets.

Pimco’s 20% overall gains, meanwhile, were achieved without the benefit of a target date fund series that could boast a three-year track record in 2010. The company was able to benefit in 2010 from growing plan sponsor demand for inflation-hedging strategies, with strong flows into offerings such as the Pimco Real Return and Pimco Commodity Real Return funds over the past year, said Stacy Schaus, a senior vice president and leader of Pimco’s DC practice.

With a three-year track record as of March 11, Pimco’s target date series should attract growing interest, Ms. Schaus predicted, citing its relatively conservative structure, with both inflation hedging and tail risk protection. And even on a DC-investment-only basis, the company has benefited from target date demand, with its products frequently included in custom target date plans — which account for more than 20% of the total, she said.

On the domestic equity side, Capital Research’s American Funds Growth Fund of America remained a category killer, up 7.4% at $67.6 billion, followed by the Fidelity Contrafund, up 18.7% at $44.7 billion, and the Vanguard Institutional Index Fund, whose 33.4% gain to $23.7 billion lifted it to third, from fifth place the year before.

Among the top 10 domestic equity funds, only Fidelity’s Magellan Fund lost assets, with a 15% decline to $10.6 billion, dropping Magellan one spot to 10th place.

Although DC mutual fund rankings have proved fairly stable in the past few years, some competitors predict that change could be coming.

Chip Castille, a managing director and head of BlackRock’s U.S. and Canada DC business, said mutual funds account for roughly 10% of his firm’s DC business, but BlackRock is gearing up to compete more fiercely for the $1 trillion-plus segment of the market looking for mutual fund offerings.

It is investing aggressively in the business, and early results have been “very promising,” said Mr. Castille, noting that the firm’s DC mutual fund assets stood at $41.9 billion as of Feb. 28 — essentially matching the $4 billion gain in the first two months of 2010.

In March, BlackRock filed with the Securities and Exchange Commission to bring out mutual fund versions of its LifePath target date series.

Douglas Appell is a reporter for sister publication Pensions & Investments.