man touching dollar sign on glass Relatively few TDF managers invest big money alongsidethe savings of the 401(k) participants they compete for. (Photo:Shutterstock)

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The millions of Americans who are placing their retirementprospects in target-date funds can “rightfully expect” themanagers of their assets to invest their own money in the savingsstrategies as well, says Jeff Holt, director at Morningstar andlead author of the 2019Target-Date Fund Landscape Report.

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But the fact is that relatively few TDF managers invest big money alongside thesavings of the 401(k) participants they compete for.

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Of the roughly 140 fund managers who run 63 differenttarget-date series, only 16 — or 11 percent — invest $1 million ormore of their own cash in the glide paths they manage. (SeeMorningstar's chart near the end of this article for namesand funds.)

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To be fair, $1 million – -the highest threshold of managers'personal investment the Securities and Exchange Commission reportsin mutual fund disclosures — isn't exactly chump change, even forproductive TDF managers.

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The exact salaries and earnings of mutual fund managers are nota required disclosure to the SEC. That opaqueness has spurredcriticism in media reports, and from some corners of the fundindustry, that money managers' compensation is exorbitant.

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Research from Institutional Investor shows the average mutualfund portfolio manager earned $1.37 million in 2018, and $938,955in 2017

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The best-paying firms managed mutual funds — not necessarilytarget-date funds — overseeing between $10 billion and $30 billionin assets. Fund managers at those firms earned an average of $1.59million in total compensation last year, including $1.36 million inbonuses, options, and commissions, reports InstitutionalInvestor.

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The fund companies tracked by Morningstar manage between $396.2billion (Vanguard) in TDF series on the highest end, and $16.9million (Columbia) on the lowest end.

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A separate survey, conducted by Russell Reynolds Associates,showed fund managers at mutual fund companies made an average of$436,500.

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Still, the fact that so few managers of mutual fund TDFs reportinvesting more than $1 million in their own strategies is“telling,” Morningstar's Holt recently told BenefitsPRO.

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“Coinvestment signals the managers' conviction in theirapproach,” writes Holt in the 2019 TDF report. Target-datecollective investment trusts, which are gaining considerablemomentum in the 401(k) space and now account for $660 billion inretirement savings, do not disclose whether managers invest intheir own strategies.

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The 16 managers investing more than $1 million come from eightfirms. Morningstar tracks the TDF offerings from 29 firms.

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chart showing portfolio managers with over 1 million in their TDF Portfolio managers with funds over$1 million personally invested in their TDF series. Chart:Morningstar

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No TDF offers a purely passive strategy, but funds comprised ofat least 80 percent of passively managed underlying funds comprise$480 billion, or 43 percent of the mutual fund TDF space. Thosemanagers presumably make less than managers of actively managedTDFs, which held $570 billion, or 52 percent of the market in2018.

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Six of the 16 TDF managers who are investing $1 millionor more in their own funds oversee multiple target-date series.Four of them invest more in their active strategies than theirpassive strategies, demonstrating their belief that active stockand bond picking will outperform indexed strategies even as nearlyall of the $55 billion in new TDF flows went to passive strategiesin 2018.

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READ MORE:

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CITs capturing mutual fund TDFassets

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Target-date fund 2.0? 

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Warning: Not all TDFs are the same —Carosa

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.