Healthy Momentum Measured for CITs

An analysis finds collective investment trusts (CITs) are gaining momentum for their potential to lower costs and reduce portfolio volatility, but obstacles remain with transparency and accessibly. 

By John Manganaro | October 14, 2016
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Research from Cerulli Associates finds that qualified retirement plans and other institutional investors remain enthusiastic about leveraging collective investment trusts (CITs)—resulting in strong growth and innovation in the space.  

Cerulli data shows CITs have collected more than $2.5 trillion as of year-end 2015. According to Chris Mason, senior analyst at Cerulli, a lot of the momentum is due to the fact that CITs have become an increasingly popular vehicle for institutional investors in both the defined benefit (DB) and defined contribution (DC) marketplaces.

“These vehicles serve as a viable alternative and potentially more cost-effective options for institutional investors to accomplish their investment goals [compared with mutual funds],” he explains, noting that Cerulli believes plan sponsors, consultants, and recordkeepers are “now more familiar with some of the basic operational attributes of CITs than in years past.”

The Cerulli research warns, however, that CITs have a variety of unique characteristics that often can be misunderstood, leading many CIT managers to focus on efforts to increase awareness and education of the vehicle.

“Likely the biggest differentiator from mutual funds and exchange-traded funds is that CITs can only be used in qualified retirement plans—i.e., DB plans, and increasingly, 401(k) DC plans,” the research explains. This restriction means that data availability on third-party platforms can be an issue, making benchmarking potentially a tougher task. 

Cerulli advocates for increased education efforts for end-investors that explains how CITs are investment vehicles in which assets from multiple plans can be commingled into one trust. Each CIT is managed professionally on behalf of those plans (or a single large plan in some cases) and not open to the public. For that reason, they’re only available as an investment option within employer-sponsored plans that have negotiated an agreement with the CIT provider. They can also be very nimbly tailored to serve the needs of the specific plan population buying/creating the CIT. 

NEXT: Defining characteristics of CITs