Many US asset managers have turned to target-date/lifecycle funds in a bid to satisfy investors competing needs of wealth accumulation and retirement protection, heralding a new era of challenges.
Respondents of The Cerulli Edge – US Asset Management Edition survey reported the ability to acquire and retain clients as the number one business concern for 2008. “In an effort to differentiate themselves, provide long term growth opportunities for accumulation oriented clients, and meet the distinct needs of retirement income investors, many asset managers have turned to target-date/lifestyle funds,” the report said. Yet constructing such funds (in which the equity to fixed interest ratio inverts over time) while mitigating fiduciary risk, will require managers to formulate assumptions about a myriad of variables – while acknowledging that such assumptions rarely mirror reality. Many factors over which the asset manager has no control, such as disruption to income stream, inflation and life expectancy can have profound implications on a retirement plan, and thus managers need to exercise extreme caution ensuring they don’t promise more than they can deliver, the report said. The challenge of determining the best ‘glidepath’ (shift in asset allocation over investment horizon) will be exacerbated by the lack of long-term track record or established benchmark against which to measure the performance of such funds. In the report Cerulli counsels asset managers to assemble a task force within their organisations to work on the benchmark issue.
The $34 billion Brighter Super is set to shift a significant proportion of equities assets in MySuper from passive to active management. Chief investment officer Mark Rider says the move is possible because of the scale created by mergers, and the fund will be looking to its newly appointed active managers to generate performance through the cycle by taking idiosyncratic risks.
Darcy SongJanuary 21, 2025
