(October 3, 2013) — The US institutional market will increase by 30% over the next five years, leading to the industry having $19 trillion in assets, according to research from Cerulli Associates.
Much of the growth has already come from the burgeoning defined contribution (DC) market: As of the end of 2012, the US institutional market stood at $14.5 trillion in assets under management, $4 trillion of which was in DC funds.
“The shift from defined benefit (DB) to DC is continuing,” explained John Hsu, senior analyst at Cerulli Associates. “DC markets continue to grow faster than DB markets and we anticipate that trend will continue.”
Cerulli Associates’ research also found fund managers were expanding their fixed-income offerings to provide better performing funds for pension managers hungry for yield.
Non-traditional examples of fixed-income assets which are being considered or under development include bank loans (selected by 30.2% of fund managers), unconstrained bonds (27.3%), and high-yield bonds (13.1%).
“Cerulli contends that development with this risk-focused mentality will resonate well with investors given the heightened sensitivity to risk and need for income,” the report said.
Inflation fears appear to have subsided however. With core inflation averaging 1.6% for the past 12 months and the median forecast around 2% for the remainder of 2013, the push for inflation protection products has fallen away.
One conversation with an asset manager even revealed it planned to delay the launch of an inflation-protected fund, given the dwindling demand for the product, Cerulli Associates said.
“This mentality was validated by our research, as only 2% of respondents identified inflation-protected bonds as a product under consideration or development,” the report said.
Not everyone’s convinced inflation is not a problem: aiCIO reported last month that the California State Teachers Retirement System had increased the inflation-linked part of its portfolio from 2% to 6% to “build in protection for the future” of the fund.
Cerulli Associates’ report can be read here.
Related Content: What Now for Fixed Income? and Is the ABS Market Making a Comeback?