Fidelity Launches CITs With Alternative Investment Exposure

Fidelity Investments announced on Wednesday 14 new collective investment trust investment vehicles that include 5% exposure to direct real estate—with the potential for other alternative assets in the future.

Fidelity’s asset management arm has launched the Freedom Plus Commingled Pool target-date series for eligible qualified retirement plans. The investment strategy is designed to leverage Fidelity’s TDF glide path approach with both liquid and illiquid alternative investment strategies, according to the firm.

The alternative portion will be put toward direct real estate investment, sitting alongside equities, bonds and other short-term strategies similar to Fidelity’s other Freedom TDF products popular in DC plans. The investment team will “continue to evaluate additional alternative asset classes for inclusion in the portfolios over time,” according to an emailed response from a spokesperson.

“Alternative asset classes in a multi-asset portfolio may provide potential benefits, including improved diversification and enhanced risk-adjusted returns,” Andrew Dierdorf, co-portfolio manager of Fidelity Freedom Plus CITs, said in a statement. “As interest in alternative investments is growing among plan sponsors and advisers, this offering builds upon Fidelity’s organizational commitment to providing customers with a range of investment choices, including options for clients interested in alternatives.”

In addition to Freedom Plus, Fidelity offers three other Freedom CITs: Freedom, Freedom Blend and Freedom Index, according to the spokesperson. As of September 30, Fidelity has more than 300 institutional clients representing about $120 billion in assets under management using Fidelity for target-date solutions, according to the firm.

In research released Wednesday, consultancy Cerulli Associates noted that CITs continue to take the place of mutual funds in retirement plans. The shift is being spurred by an increase in retirement plan advisories serving the midsize and smaller client markets recommending CITs, Cerulli wrote.

Meanwhile, an October white paper produced by the Defined Contribution Alternatives Association noted ways retirement plan advisers and sponsors can incorporate alternative assets into plans. The organization noted that, since regulators smoothed the way for alternatives to be used in DC plans in 2020, there has been an increase in their inclusion.

The October paper specifically addressed the ongoing concern of using “illiquid” assets in a defined contribution plan that go against participant “expectations of flexible, fast, daily access to their retirement savings.” DCALTA suggested a few ways to manage the illiquidity issue, including third-party options that can address liquidity and capital requirements.

Fidelity noted that its Freedom Plus CIT series will be marketed in a similar manner to its other target-date offerings: either directly to plan sponsors or plan consultants and advisers. The firm noted a benchmark for the CITs as the Fidelity Freedom Plus Compositive Index because “the weights and indices are representative of the strategic allocation in the portfolios.”

Fidelity cited its Plan Sponsor Attitudes Study in noting plan sponsor interest in leveraging CITs in retirement plans. The survey of 1,351 plan sponsors conducted in March found that in the past two years, 29% of respondents increased the number of CITs within their investment options. The overall percentage of plan sponsors offering CITs had a 10% annual growth rate from 2018 to 2023, according to the study.