Aspiring Sponsors Must Bear in Mind Nuances of CIT Product Development

March 2, 2021 — Boston

This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes mutual fund and exchange-traded fund (ETF) product trends as of January 2021, explores the unique attributes of collective investment trusts (CITs), and covers the growth of outsourced chief investment officer (OCIO) assets managed in separate accounts.

Highlights from this research:  

  • While ETF assets climbed more than 1% during January, mutual fund assets fell 0.2%, ending the month just below $18.2 trillion. ETF assets eclipsed $5.5 trillion, thanks to more than $55 billion in net flows. Mutual funds also gathered positive net flows ($38.3 billion)—the third consecutive month for the vehicle.
  • Driven by plan sponsors’ pursuit of lower-cost alternatives, CITs have captured marketshare from mutual funds. A unique characteristic that separates CITs from their mutual fund counterparts is the need for a seed investor. To build out a CIT business, managers must have a strategy for acquiring seed investors such as incentivizing an existing mutual fund client through favorable terms or calling upon consultants to serve as matchmaker. Results from Cerulli’s 2020 partnership survey with the Coalition of Collective Investment Trusts show that, in addition to drawing upon existing relationships to source seed investors, CIT sponsors report finding new clients to seed CITs, suggesting that comfort with the vehicle has grown.
  • Cerulli observes a trend of larger clients (greater than $100 million in AUM) turning to the OCIO model and bringing new demands to OCIO providers, such as fully customized portfolios. Responding to this demand, almost all OCIO providers (90%) offer a service model that includes a fully customized portfolio using separate accounts. Cerulli expects that as the typical client size of an OCIO provider grows, the use of separate accounts will increase. Growth in the use of separate accounts is not only driven by the demand for customization, but also by the demand for lower fees.

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Note to editors

These findings and more are from The Cerulli Edge―U.S. Monthly Product Trends, February 2021 Issue.

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