Collective Investment Trusts (CITs) are becoming increasingly popular with defined contribution plan sponsors as a way to provide their employees with an Investment option. CITs are a type of pooled Investment vehicle that allows investors to pool their funds together in order to invest in a variety of assets. They offer a number of benefits to investors, including lower fees, tax advantages, and the ability to invest in a wider range of Investment than mutual funds.
In recent years, CITs have become a popular choice for defined contribution plan sponsors due to their ability to offer a wide range of Investment in a cost-effective manner. In fact, a survey by the Investment Company Institute found that CITs accounted for nearly one-third of all defined contribution plans in 2018.
M&T Bank (NYSE:MTB) recently agreed to sell the Collective Investment Trust business of its Wilmington Trust unit to private equity firm Madison for $115 billion. This move highlights the increasing popularity of CITs and could potentially open the door for more investors to take advantage of the benefits they offer.
The European Commission recently consulted on the value-added tax (VAT) treatment of fund management services and proposed a number of criteria for CITs. These criteria would require that: (a) the fund is a collective Investment; (b) the fund operates on the principle of risk-spreading; (c) the funds are pooled and professionally managed; and (d) the fund has a defined Investment objective.
SEI Trust Company President & CEO Robb Muse recently commented on the increasing popularity of CITs in the defined contribution market. According to Muse, "CITs offer a cost-effective option for plan sponsors, allowing them to provide a wide range of Investment to their employees at a low cost. CITs are also attractive because they can be customized to meet the specific needs of each plan sponsor and their employees.”
While CIT providers continue to focus their distribution efforts on defined contribution plans with $25 million or more in assets, they are also beginning to target smaller plans that are looking for a low-cost, diversified Investment option.
Adding sustainable funds to CITs is another way to attract investors. Target-date funds may be mutual funds or collective Investment trusts put together to automatically adjust the asset allocation of the fund based on the invest’s age. This can make it easier for investors to invest for the long-term, as the fund will adjust its asset allocation as the invest gets older.
Investment trusts are ‘pooled’ or ‘collective’ Investment vehicles that combine the contributions of thousands of investors to invest in a variety of assets. These funds are professionally managed and are designed to spread the risk of invest among a number of different assets. Investment trusts can be attractive to investors due to their low cost and the ability to diversify their portfolio.
Asset managers are replicating existing mutual fund Investment strategies in separately managed accounts and collective Investment trusts to appeal to a wider range of investors. By offering these strategies in CITs, asset managers are able to offer investors the same Investment at a lower cost.
In conclusion, Collective Investment Trusts have become increasingly popular with defined contribution plan sponsors due to their ability to offer a wide range of Investment at a low cost. The European Commission’s consultation on the VAT treatment of fund management services and the increasing popularity of sustainable funds are also helping to drive the popularity of CITs.
