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
“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.
characteristics of CITs