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Friday, November 24, 2023

Three Decades of TDFs

Reported by Neil Anderson, Managing Editor

The asset management industry's most dominant 401(k) investment option reached a big milestone earlier this month.

Laurence D. "Larry" Fink
Chairman, CEO
November 2023 is the 30th anniversary of the launch of Wells Fargo Nikko's LifePath funds, the first ever target-date funds (TDFs). The funds debuted in the first week of November 1993, Barclays bought Wells Fargo Nikko in 1995, and BlackRock bought Barclays Global Investors in 2009. BlackRock's LifePath business has grown to $450 billion in AUM globally, a company spokesperson tells 401kWire (a sister publication to MFWire).

BlackRock CEO Larry Fink and retirement group chief Anne Ackerley both recently highlighted TDFs' big birthday. And last month the BlackRock team launched target-date ETFs, designed specifically for workers who lack DC plan access.

Since the Pension Protection Act of 2006 (PPA) blessed 401(k) automatic enrollment and a followup Department of Labor reg blessed TDFs as one of the few qualified default investment alternatives (QDIA) in 401(k)s, TDFs have grown to become the single biggest slice of 401(k) assets. According to the Investment Company Institute (ICI), mutual fund TDFs accounted for 10.9 percent of all DC assets as of the end of Q2 2023 ... and that doesn't take into account CITs and custom TDFs. At one big recordkeeper, TDFs now hold 31 percent of assets and 51 percent of incoming contributions.

Fink offers his take on why TDFs have grown to become such a huge piece of the retirement savings world:
TDFs are a simple way to invest for retirement. To choose the right one, people have to make just one decision — what year do you want to retire? These are funds are designed around that. Target Date Funds have made investing easier and more accessible for millions of Americans.

Yet TDFs have not been a blessing for all fundsters with 401(k) designs. While a few defined contribution investment-only giants (DC I-O, i.e. asset managers without recordkeepers) like BlackRock and J.P. Morgan have developed huge TDF businesses, most of the big TDF players are bundled providers (i.e. recordkeepers that also offer investment products): Vanguard, T. Rowe Price, Fidelity, TIAA (Nuveen), etc. The 21st century spread of automatic enrollment and TDFs has helped recordkeepers push back against the 1990s rise of open-architecture fund lineups. Yet perhaps the renewed push for managed accounts will swing the pendulum back ... 

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