In our experience, we have found that institutionally-priced mutual funds remain the dominant, preferred structure in DCIO sales across plan size. On the other hand, institutional separate accounts generally make more economic sense where the mandate is $50M or greater. For this reason, we have created platform strategies for clients seeking to compete effectively across the spectrum. We have brought our expertise to assist in exploring and creating various regulatory structures as an effective growth strategy to compete in this burgeoning arena.
For example, several clients have dusted off their Collective Investment Trusts (CITs) as they appear to be poised to capture market share for several important reasons. In the large plan segment, our contacts in the pension consultant marketplace are starting to recommend these vehicles to sponsors. To a large extent this shift is driven by plans seeking to proactively address operating costs associated with mutual funds. This emerging trend is especially notable where plan sponsors seek to fully disclose plan costs to participants with clarity and transparency.
There are a number of means by which managers can access and compete effectively in this marketplace. The key, dominant variable determining which alternative is most suitable hinges upon the investment managers preference, structure, culture and AUM. DCIO is a growing area of opportunity for asset managers who wish to take advantage of the opportunity.
Entering the 401(k) market or becoming more competitive within that segment requires a comprehensive view of the managers overall strategy in the marketplace. Given the size of the mandates and the scrutiny of the portfolio's contained within a plan, 3 and 5-year performance remain as the key determinant for entree and sustainability, not to mention asset attraction and retention. Alternative and absolute return strategies are poised to increase their share-of-wallet as plan participants become more sophisticated and traditional sources of return come under pressure.
Nimble managers are viewing our expertise as a means of developing and deploying multiple pricing structures for the expertise they bring to the management of these plan assets. We advise managers on how to delineate and differentiate their offerings by offering their products to our clientele with varying levels of management and sub-T/A services and fees.