Inside the DB Survey: Smaller Plans More Passive

Overall, 20% of plan assets in PLAN SPONSOR’s 2001 Defined Benefit Services Survey audience were invested in passive, or indexed, investments. 

Despite the proportion of passive investments in the portfolios, nearly three-fourths (74.2%) use a single passive manager, compared with a median of five managers for the active component of the portfolios.

Trend Lines

The trend toward active management seems likely to continue with:

• A continued poor market outlook compared with aggressive return targets
• Market volatility seen as an opportunity for active strategies
• A move toward enhanced index products

Opportunities afforded by a manager-of-managers approach that eliminates many of the cost and transactional inefficiencies of active management

Smaller plans were much less likely to hire investment managers outside the US.  While roughly two-thirds of plans with more than $1 billion in assets did so, only about 12% of respondents with less than $1 billion did. 

Performance Peers

While the vast majority (87%) of large plan sponsors reviewed fund performance against a peer universe, less than half of those with less than $10 million in assets were inclined to do so.  Most met with their investment managers annually, while less than a quarter met every quarter.  A surprisingly strong 37% met “as necessary.”

The vast majority of plans with less than $50 million in assets (84%) were not considering performance fees for their investment managers, while roughly 15% had them in place.

The largest programs were a mirror image, with 80% already having performance fees in place.  Nearly half (47%) of the plans with more than $1 billion in assets were not considering implementation. 

However, a third of plans with $200 – $500 million in assets were considering performance fees, potentially joining the 22% with those programs already in fees.