A knock on the current crop of TDF providers is that many have underlying investments largely comprised of proprietary funds.
It seems to make sense to be able to select best of breed for each asset class to maximize returns. Jeffrey Snyder and colleague Denis Burns, consultants at Cammack Retirement, predict that “Existing asset managers [will] broaden their product offering by including outside managers who may complement their core strategies.” The percentage of plans offering custom TDFs almost doubled in 2014, from 11.5% to 22.3%, at the expense of record keepers’ proprietary TDFs, which dropped from 47.5% to 28.7%, according to research by Callan.
So it’s no surprise that Alliance Bernstein (AB) recently announced the November closing of its AB Retirement Strategies target-date fund series. Once a pioneer and high flyer in the TDF industry, assets in its active proprietary TDF have dwindled to just over $1 billion, losing half its assets since 2010 in a space that continues to expand.
AB is betting on their open-architecture TDFs, announcing earlier this year a partnership with Morningstar, in which AB creates the glide path and asset allocation, with Morningstar originally named to make the selection of funds from partners that include managers like Franklin Templeton, MFS, T Rowe Price and AQR, along with AB, which requires 30% of the assets. Forty percent of assets are passive in the form of ETFs.
Last month the firm unveiled a multi-manager target-date series (scroll down to June 2 entry) in a collective investment trust (CIT) format, with AB responsible for the glide path design and management and Mercer providing the third-party manager research and selection for approximately 70% of the portfolio assets. The firm has also recently published a research paper, “Designing the Future of Target-Date Funds: A New Blueprint for Improving Retirement Outcomes,” which extolls the virtues of a “multi manager, open architecture structure.”
Sounds logical. But the DC industry is not always rational, and record keepers continue to keep a tight hold on fund lineups and data. Richard Davies, head of DCIO at AB, asks the pointed question, “What other asset category within a DC plan allows just one investment manager?” There is a definite move away from bundling record keeping and TDFs, Davies asserts. “Target date funds will not bundle an industry that has been unbundling for the past 20 years.”
