US institutional market set to grow by 36%, says Cerulli

The outlook for asset managers in the US pensions market brightened with news that US institutional funds market is set to grow 36% over the next five years.

New research from Boston-based global research firm Cerulli Associates estimates that by 2017 assets in the US institutional market will reach $18trn, up from $13.2trn at end of 2011.

The US institutional funds industry has shown steady growth through a difficult decade, says Michele Giuditta, associate director at Cerulli. He says: “We have seen the US institutional market weather two major bear markets following the tech bubble burst in 2000 and the more recent global financial crisis, yet the market has shown steady growth.”

In its report, US Institutional Markets 2012, Cerulli highlights the growth in assets of the defined contribution (DC) pensions market at the expense of the defined benefit (DB) market. 

Giuditta says: “We’ve seen a shift in the past two decades in which DC plans have begun replacing DB in retirement vehicles. With over $3.5trn in assets, private DC is the largest US institutional market.”

John Hsu, senior analyst at Cerulli, added: “DC markets have grown faster than DB markets. And we expect that trend to continue over the next five years. There is an opportunity for asset managers to continue to grow their assets in the 401(k) market, which comprises more than 90% of the corporate DC market by assets.”

Cerulli cites other opportunities with alternative products and investment consultants in the institutional market, as well as challenges asset managers face with endowments and foundations.

Cerulli defines the institutional market based on the identity of the end-client, classifying assets as institutional only when the asset manager’s end-client is an institution. The report also analyzes service and product strategies, as well as the implementation of effective sales strategies.

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