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Mutual Funds And Investment Assets

Todays Date: November 18, 2018

At first glance, the life insurance industry appears to be in trouble as it faces the millennium. As the large baby boomer market ages, these consumers have shifted their financial focus away from life insurance and towards assuring their future comfort. Although the industry has long recognized that its future lies in more in financial products than in life insurance, it has lately been losing its share of the retirement market

There has also been a decided shift in the nature of the nation’s retirement assets. In 1980, total defined benefit assets in the U.S. were 2.5 times defined contribution assets (mostly, 401(k) plans). By 1993, the latest date for which figures are available, total funds of both types of plans were almost equal. From 1984 to 1993, total U.S. 401(k) assets alone grew from about $92 billion to $616 billion, increasing from 0.74% of Americans’ total wealth to 2.18%. As a share of total retirement capital, 401(k)s rose from about 7% in 1984 to 16.6% in 1993, according to the U.S. Department of Labor.

The annuity market represent insurers’ best hopes to retain a significant share of the retirement market. In 1993, annuities represented almost 20% of the market, following IRAs’ 23.4%. Insurance companies’ share of this huge financial stash stood at almost 76% in 1993, equal to more than $1 trillion, of which about $734 billion was earmarked for retirement.

Life insurance carriers, then, are likely to retain significant sales and profit growth in the retirement market. Still, the industry needs to find new ways to grow. Its recent binge of mergers and acquisitions has improved cost efficiency and diminished competition among carriers, but is scarcely enough to offset inroads by brokers and mutual funds. Even banks have declared their intentions to market competitive new instruments in the annuities market.

Insurers’ strength is that they can leverage a wide spectrum of products to help them to protect their presence in the retirement marketplace. For example, they can offer one-stop shopping for a combination of retirement income, long-term care coverage and estate protection. By offering consumers products that blend traditional risk protection with asset management, insurers may be able to protect their own future.

The industry was relatively quiet for more than two decades, until a 1986 article in Institutional Investor touted the double-digit performance of Julian Robertson’s Tiger Fund. With a high-flying hedge fund once again capturing the public’s attention with its stellar performance, investors flocked to an industry that now offered thousands of funds and an ever-increasing array of exotic strategies, including currency trading and derivatives such as futures and options.

Hedge funds have evolved significantly since 1949. Modern hedge funds offer a variety of strategies, including many that do not involve traditional hedging techniques. The industry has also rapidly grown, with recent estimations pegging its size at $1 trillion – quite the leap from the $100,000 used to start the first fund half a century ago.

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