There have already been more than double the number of target date fund liquidations so far this year than there were in all of 2008. Moreover, experts predict that trend to increase as smaller fund managers are finding it nearly impossible to gain traction in the market.
Year-to-date, there have been 15 target date fund liquidations, compared with seven for all of 2008, according to Morningstar.
Most recently, on Oct. 15, Payden & Rygel Investment Management closed its Payden/Wilshire Longevity Funds.
Payden & Rygel decided to close its funds “to focus on the core business,” said Kimberly Tipton, a spokeswoman. The four funds, which went live in July 2007, had $10 million in assets.
Another fund company, Old Mutual Asset Management, filed in September with the Securities and Exchange Commission to shut down its 12 target date funds. These funds, which had $4.5 million in assets, will close in December, according to the filing.
While the liquidations are already occurring at an accelerated pace, some in the industry expect the trend to continue.
“I think there is going to be more consolidation in the target date fund space,” said Lori Lucas, executive VP and defined-contribution practice leader for Callan Associates Inc., an institutional investment consultant. “I have heard of a few managers pulling back.”
“Most asset managers tell us a fund has to have $100 million to 150 million in assets to be profitable,” said Cindy Zarker, a director at Cerulli Associates Inc. As of April, there were 246 target date funds with less than $100 million, according to Cerulli.
“More smaller players are saying, ‘Since we aren't 401(k) plan record keepers, we can't do this,'” Ms. Zarker said, noting that 80% of the target date fund market is controlled by the same three companies:
Fidelity Investments,
The Vanguard Group Inc. and T. Rowe Price Group Inc.
Also, since so many of these funds are less than three years old, the market drop of 2008 killed any hope of these managers' achieving a respectable performance track record anytime soon, said Howard Schneider, president of Practical Perspectives, a consultancy.
“Not only did these funds not get traction,” Mr. Schneider said, “but their performance records have been so hurt by the last year that they will never recover.”
