SEI White Paper: Collective Trust Product a 'Must' for Asset Managers in 401(K) Market

Robust operating infrastructure, trustee capabilities needed to compete

OAKS, Pa., May 14 /PRNewswire-FirstCall/ -- Collective investment trusts (CITs) are rapidly penetrating the defined-contribution retirement market and represent a "major business opportunity" for asset managers who can meet the requirements of this investment vehicle, concludes a white paper released today by SEI (Nasdaq: SEIC), titled "Collective Investment Trusts: The New Wave in Retirement Investing"

Much like mutual funds, CITs are an institutional-only product that pools assets from retirement plan participants into a single portfolio. They have recently surged in popularity, the SEI paper found. Based on Morningstar data, CIT assets nearly tripled from 2004 to 2007 and grew by more than 150% between 2005 and 2007 alone, reaching a total of $500 billion in AUM at the end of 2007. Morningstar now tracks more than 800 CITs, in addition to at least 63 new collective trusts launched between January and April of this year.

The paper also found collective trusts have increased their penetration of the retirement plan market. In 2006, CITs were found in 41% of defined- contribution plans versus 32% of plans in 2003. During the same period, the portion of plans offering retail mutual funds dropped from 65% to 54%.

"CITs are gaining momentum because they fit two of the major trends affecting plan sponsors," said Phil Masterson, Managing Director, Solutions, for SEI's Investment Manager Services division. "With investors becoming more outcome-oriented, plan sponsors want to be able to offer defined-contribution solutions as robust as those on the defined-benefit side. At the same time, public policy and litigation are increasing the scrutiny of plan costs and fees, pushing plan sponsors toward lower-cost solutions."

    Advantages of CITs
    The paper details a number of CITs' advantages, including their:

    -- ability to invest in hedge funds and other alternative investment
       vehicles, as well as in listed securities, ETFs, and mutual funds.

    -- exemption from the 1940 Investment Company Act and SEC registration.
       Instead, CITs come under the jurisdiction of bank regulators and the
       Department of Labor.

    -- operating cost advantages, due to their relatively simple structure and
       regulatory status, which can translate into lower fees. Lower fees can
       enable asset managers to more cost-effectively launch new products and
       offer "assembled" advice products such as target-date and target-risk
       funds.

    -- negotiable and customizable fee structure.

CITs Easier Way for Asset Managers to Gain 401(k) Market Share

With these advantages, CITs can give asset managers a relatively easier way to gain a foothold in the 401(k) market, the SEI paper states, noting that the small plan market has "particular growth potential" since an estimated 80% of small businesses do not have retirement plans.

CITs may represent an underestimated business opportunity, the report suggests, since not all CITs trade on the same system and some major players in this market do not release CIT statistics. The total assets currently allocated to CITs and their growth momentum may be significantly greater than available data indicates. The report also states that the Pension Protection Act of 2006 will be a "major catalyst" for further growth of CITs, since the Act's automatic enrollment provisions are expected to significantly increase retirement plan participation rates and assets. The Act also requires plan sponsors to provide lower-cost plan options.

CIT's Require Enhanced Operating Capabilities

Asset managers wishing to offer CITs will need to meet or overcome certain challenges, the SEI paper states, the most difficult being the need to upgrade their operating capabilities. It notes that "siloed legacy systems are not likely to be flexible or powerful enough to accommodate CITs. To be competitive, CIT managers will require robust, vehicle-agnostic operating systems capable of handling a broad range of asset classes and packaging types, real-time pricing, efficient management of recordkeeping, accounting, and fee allocations."

According to the report, managers of CITs must also have trustee capabilities, since by law CITs must be maintained by a bank or trust company. Based on the strength and momentum of the CIT trend, the report concludes, "It is clear that asset managers will need CIT capabilities to compete in the 401(k) market going forward."

The white paper is published by the SEI Knowledge Partnership, which provides ongoing business insight, market intelligence and points of view to SEI's investment manager clients. To request a copy of the white paper, please visit http://www.seic.com/ims/CIT .

SEI has nearly 20 years of CIT experience and is one of the leading providers of collective investment trust services, providing all the required trustee, investment management, accounting, administration, transfer agent and plan-level servicing.

About SEI's Investment Manager Services Division

SEI's Investment Manager Services division provides total operations outsourcing solutions to global investment managers focused on mutual funds, hedge and private equity funds, exchange traded funds, collective trusts, separately managed accounts and institutional and private client services. The division applies operating services, technologies, and business and regulatory knowledge to each client's business objectives. Its resources enable clients to meet the demands of the marketplace and sharpen business strategies by focusing on their core competencies.

About SEI

SEI (Nasdaq: SEIC) is a leading global provider of outsourced asset management, investment processing and investment operations solutions. The company's innovative solutions help corporations, financial institutions, financial advisors, and affluent families create and manage wealth. As of March 31, 2008, through its subsidiaries and partnerships in which the company has a significant interest, SEI administers $424 billion in mutual fund and pooled assets and manages $185 billion in assets. SEI serves clients, conducts or is registered to conduct business and/or operations from more than 20 offices in over a dozen countries. For more information, visit www.seic.com.

    Company Contact          Media Contact
    Dana Grosser             Jason Rocker
    SEI                      Braithwaite Communications
    610-676-2459             215-564-3200 x 110
    dgrosser@seic.com        jrocker@braithwaitepr.com

SOURCE SEI

Released May 14, 2008