It was announced earlier this week that Janus and Henderson were merging their operations. Speculation around this transaction was that the active / passive trend favoring passive was putting pressure on the businesses of active managers, particularly in their ability to raise new assets. We say hogwash! The active / passive CYCLE has existed for quite some time, and it will always exist because of portfolio construction biases, which we’ve written about in a previous blog post.
We believe that the primary reason that active managers are having a difficult time attracting new clients and assets is because of the demise of the defined benefit plan! There are far fewer plans today (roughly 23,000) than there were 30 years ago (146,000 (DOL)), and many of those still in existence have frozen their plans to new employees or at a minimum have begun to de-risk their plans (see corporate America’s behavior).
We think that DB plans are superior to DC offerings, and have expressed those feelings many times before. What is fascinating to us is the fact that although many small to mid-sized asset managers have little exposure to DC asset bases they haven’t spoken out in favor of DB. The trend favoring DC versus DB will only magnify, as more DB plans are shuttered because of deteriorating funded status and escalating contribution costs.
I suspect that there are many asset management organizations that believe a traditional DB plan is superior to a DC offering. However, I don’t see them advocating for DB versus DC. Their silence may just be the death knell for DB, and consequently their own business. Currently a hand-full of mutual fund companies dominate the DC space. Mutual funds still are the vehicle of choice for offering one’s product, although we see ETFs gaining traction. However, most defined contribution plans are too small to have separate accounts as options within their plans.
Without a mutual fund or ETF platform, it is going to prove very difficult to penetrate the DC space. Think that the Janus / Henderson merger is an anomaly? Think again! DB plans need to be maintained, and if I were running an asset management organization, I would do what ever I could to be their advocate. Unfortunately, their silence is deafening!