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Barclays Focuses on Retirement Market


Barclays Global Investors of San Francisco has begun a major push to increase its presence in the defined contribution retirement market.

Top executives at the firm believe that an increasing demand among large retirement plan sponsors for index products, institutional pricing and investment style consistency affords Barclays Global Investors, or BGI as the firm is known, a chance to increase its share of business among money managers of defined contribution assets.

"We feel like we are on a mission," said Richard Malconian, managing director of BGI's U.S. defined contribution channel.

BGI, with more than $80 billion in assets under management in the defined contribution channel, is fourth among money management firms in that market, according to Pensions & Investments, a Crain Communication's publication which ranks top firms. BGI trails Fidelity Investments of Boston, TIAA-CREF of New York and State Street Global Advisors of Boston. The firms have assets under management in the defined contribution market of $287 billion, $245 billion and $134 billion, respectively, P&I reported last month.

When Garrett Bouton, CEO of BGI's Americas Business, announced Malconian's hiring in January, Bouton said he expected BGI to move up to the top position among defined contribution money managers. Malconian, the former president of Fidelity Investment's Tax-Exempt Services Co., did not mention Fidelity by name as a competitor in a recent interview but several of the steps BGI is taking to build its defined contribution business suggest that it is especially intent on competing with Fidelity.

Several fellow Fidelity alumni - including Lee Harbert, a former senior vice president at Fidelity Tax-Exempt Services - are among the roughly 20 salespeople Malconian has hired since he joined BGI in October. Harbert joined BGI in December.

Also, BGI expects to open a Boston office by Dec. 31 and staff it with approximately 20 salespeople and support personnel, said Malconian. And, Malconian is making much of the fact that BGI's defined contribution plan fees tend to be lower than those of its retail competitors because of its lower institutional expenses. He is further emphasizing that large plan sponsors, increasingly wary of potential litigation which challenges their selection of defined contribution plans, are giving fees greater scrutiny.

"For a large plan, the days of paying retail mutual fund prices are over," said Malconian.

Fidelity Magellan has more defined contribution assets than any other fund, according to Financial Research Corp. of Boston. Magellan had approximately $53 billion in defined contribution assets as of Dec. 31, FRC said. Seven of the ten mutual funds with the most assets in defined contribution plans are Fidelity funds, according to FRC.

BGI's assessment of the growing demand for index funds in defined contribution programs has some support.

Surveys which the Spectrem Group, of San Francisco, has conducted of approximately 1,000 401(k) plan participants, show that about 33.7 percent had an index fund option in their defined contribution plan in 1994. That percentage rose to 38.6 percent in 1996 and 49 percent in 1998. The Spectrem Group is a research and consulting firm which tracks trends in the retirement market.

There has been an increase in interest in index funds among plan sponsors, said Cathy McBreen, practice leader for retirement services at Spectrem. In addition, in 401(k) plans with assets under management in excess of $50 million, there is an increasing scrutiny of fees associated with retirement plan investments, McBreen said.

That interest is driven by concerns over the legal duty which plan sponsors owe their employees to offer reasonable investment choices as part of defined contribution plans, McBreen said. Also, company financial officials trained to examine expenses, as opposed to human resources executives, usually monitor retirement plans at larger companies, McBreen said.

BGI is counting on the interest in indexing and low cost to build its business.

Fidelity, of course, offers a range of low-cost index funds as well. The firm also has offered separate accounts as opposed to mutual funds for large plan sponsors, said Debra McConnell, a spokesperson for Fidelity. Nevertheless, Fidelity has found that mutual funds remain the most popular investment option in retirement plans, McConnell said. Daily pricing of funds in the newspaper, investor familiarity with mutual funds and ready access to third-party evaluations of funds by firms such as Morningstar of Chicago and Lipper of Summit, N.J., all are benefits of using funds in defined contribution retirement plans, McConnell said. Fidelity's fund management fees also are among the lowest in the industry, McConnell said.