Asset management firms that have recently set sail in defined contribution are eager to help advisors guide plan sponsors through less-navigated channels. By introducing custom target-date funds, alternative investments, exchange-traded funds and other options, they hope to leverage their investment expertise in ways that can help plan participants save more for retirement.

The timing is right, they say, given growing attention to fees; the Department of Labor’s long-awaited guidance on custom target-date funds, published last year; and employers’ growing interest in helping workers save more for retirement.

Goldman Sachs Asset Management (GSAM) entered the defined contribution market with its 2012 acquisition of Dwight Asset Management, a Vermont-based stable value asset manager. Upon acquiring Deutsche Asset and Wealth Management’s stable value business this quarter, it will have approximately $80 billion in DC assets under supervision, with more than $50 billion in stable value, says Greg R. Wilson, head of defined contribution, intermediary distribution for GSAM. “GSAM is striving to be a leading provider in the DCIO [defined contribution investment only] market, and that’s really through the delivery of innovative investment solutions,” he says. “The ultimate goal is to help produce better outcomes for plan participants.”

GSAM, which seeks to balance broader diversification with leaner menus and greater cost efficiencies, is taking a multi-pronged approach. First, it’s focusing efforts on capital preservation, which includes stable value. It’s also addressing fixed-income diversification and interest rate risk by building products to complement core fixed-income exposure and helping advisors incorporate alternative or nontraditional asset classes into DC plans.

In its recent white paper, “The Role of Alternatives in the Age of Volatility: Redefining Diversification for Defined Contribution Plan Participants,” GSAM notes that defined benefit plans, which have embraced alternative asset classes more than the DC market, have historically outperformed DC plans on average by 1% annually.

“The role of alternatives [in DC plans] is going to be critical,” says Wilson. “The activity and interest and the conversations that we’re having with advisors have increased exponentially over the past 12 months in this space.”

Late last year, GSAM hired Nadia Papagiannis, formerly the director of alternative fund research at Morningstar Inc., for the new role of director of alternative investment strategy for global third-party distribution. “She is a well-respected industry voice in the growing liquid alts market,” Wilson says, “and she is really focused on advisor education.”

As for fixed income, “We’re not advocating completely replacing a plan’s core fixed-income exposure,” he says. But he thinks it might make a lot of sense to add to a plan’s menu an unconstrained bond strategy, which gives managers more flexibility to adjust duration and adapt to market conditions such as rising interest rates.

The GS Retirement Portfolio Completion Fund (GRIPX) incorporates many nontraditional investments (including inflation-linked government bonds, global real estate investment trusts, commodities, emerging markets equity, emerging markets sovereign credit and North American high-yield corporate credit) and hedge fund replication. A packaged portfolio mitigates the potential downside risk of investing in any one of these asset classes, says Wilson, who notes that studies show plan participants do better and invest more when there are fewer options.

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