Regulatory Advantages and Demand for Low-Cost Vehicles Spark CIT Growth in the U.S.

Regulatory Advantages and Demand for Low-Cost Vehicles Spark CIT Growth in the U.S.

Further education and custom fee arrangements key to maintaining growth


February 2019, Boston. Collective investment trust (CIT) assets surpassed the $3 trillion mark in 2017, up from $2.8 trillion in 2016. Research from Cerulli Associates, a global research and consulting firm, shows that growth in the vehicle has been relatively consistent, averaging 10% annually since 2011. This robust growth is primarily attributed to demand for lower-cost vehicle options. Although the vehicle is seemingly poised for continued success, CIT providers must address certain challenges to sustain the current level of growth.

Cerulli believes that the main advantage that CITs offer over similar vehicles is cost savings. James Tamposi, research analyst at Cerulli, explains, “As industry-wide fee pressure leads to the development of low-cost vehicle substitutes, CIT providers will need to capitalize on other advantages, such as their fee flexibility and speed to market due to fewer regulatory requirements.”

To maintain an advantage over other vehicles, it is vital that CIT providers remain open to negotiating fees with investors. “The most prevalent type of custom CIT fee arrangement is the use of multiple share classes that have an additional criterion for eligibility,” says Tamposi. “Typically, the additional criterion will be a higher-than-standard minimum investment. This type of custom fee arrangement can work well for CIT providers by giving initial investors a lower fee, and having additional investors come in at a higher cost.”

Regulatory advantages are also giving CITs a competitive edge. “There are fewer regulatory requirements for CIT providers. This enables them to develop new strategies and bring them to market more quickly than they otherwise would through other commingled vehicles,” Tamposi adds. “Almost 90% of the CIT providers surveyed cite the speed of product development as being important to the development and distribution of CITs.”

“While Cerulli expects assets in CITs to continue to grow, it is crucial for CIT providers to examine the potential challenges to growth and respond to investor demands,” Tamposi continues. “By capitalizing on the several advantages that CITs can offer, providers can benefit from the consistent flow of assets into the vehicle.”

Cerulli’s first quarter 2019 issue of The Cerulli Edge – U.S. Institutional Edition explores request for proposal (RFP) and CIT managers’ response to the institutional market’s demands for low cost and greater transparency.

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