DGFs Lose Ground to Passive Equities


bounce bungee jumpManagers of diversified growth funds are under pressure to justify their fees as many struggle to match passive equity performance. That’s according to a new report by Cerulli Associates that also shows DGFs struggling to gain new inflows. That’s after several years of popularity in the pension space, where plan sponsors have turned to them for equity-like returns with low volatility.

But can DGF managers turn it around? The same Cerulli report says that while pressure to reduce fees will continue, there is an opportunity to tap into the de-risking space, as pension funds seeking to dial down risk begin to reach their funding targets and shift out of equities.

The path ahead for DGFs depends on where you are, however. For managers in the UK, the future lies in the defined contribution and retail spaces, with 50% of providers looking to develop DGF-based default funds for the UK market.

In the U.S., the growing interest is in multi-asset class strategies is being driven by institutions seeking to protect themselves against drawdown risk post-financial crisis.