Retirement Plan Providers Contend with Regulatory Headwinds and Ongoing Confusion Related to ESG Considerations
November 2, 2020 — Boston
This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes mutual fund and exchange-traded fund (ETF) product trends as of September 2020, discusses the challenges to environmental, social, and governance (ESG) investing with defined contribution (DC) plans, and provides an outlook for private equity investments in DC plans.
Highlights from this research:
- Mutual fund and ETF assets declined 2.3% over the course of September, ending the month at $16.5 trillion and $4.7 trillion, respectively. Mutual funds suffered net outflows of $41.7 billion during September. This comes as the first month of outflows since April. ETFs collected more than $100 billion in net flows during the third quarter, with flows of $33.9 billion in September.
- DC asset managers suggest the Department of Labor’s (DOL) proposed ESG regulation represents a significant barrier to adoption by DC plans. ESG investment products rarely feature in corporate DC plan lineups and Cerulli does not anticipate a significant increase in adoption in the near term. Despite the unaccommodating regulatory environment, asset managers plan to forge ahead with their DC-focused ESG marketing and distribution initiatives and continue to stand behind the performance-enhancing benefits of incorporating ESG into their investment processes.
- In June, the DOL issued guidance allowing for private equity investments to be incorporated into multi-asset-class strategies (e.g., target-date funds), including funds that serve as the plan’s qualified default investment alternative (QDIA). While the use of private equity has never been prohibited under the Employee Retirement Income Security Act (ERISA), Cerulli believes the DOL’s clarifying position will likely encourage broader adoption within DC plans over the long term.