A target date fund is a fund offered by an investment company that seeks to grow assets over a specified period of time for a targeted goal.

The nascent market for target date funds will accelerate in Asia, driven by demand from an ageing population for portfolios which deliver by a specific period -  advisors must push to raise awareness about these investments, a report says.

According to Morningstar data, TDF assets under management reached $20.5 billion in 2018, a year-on-year growth of 5 per cent, but they trailed the US market, where such funds held $1 trillion in the same year.

A target date fund is a fund offered by an investment company that seeks to grow assets over a specified period of time for a targeted goal. Target date funds are usually named by the year in which the investor plans to begin using the assets.

“With about 60 per cent of the world’s population and the region’s growing economies, the potential of Asia’s retirement markets is immense. Fund managers have much scope to raise and manage a chunk of these assets by educating retail investors, providing simple but appealing products, expanding distribution, and working with other industry players,” Cerulli Associates, a research and analytics firm, said in a report. 

US target date fund assets soared after regulations in 2006 allowed participants of defined contribution plans, who do not choose investment options, to use TDFs as default investment routes. Similar developments in Asia - if they happen - could accelerate the growth of TDF assets in Asia, it said. 

Some countries, particularly Korea and China, have already seen some regulatory changes which have spurred or could spur the growth of TDFs, Cerulli said.

TDFs were first launched in South Korea in 2011, but were not very popular until 2016, when assets rose to $57.9 million from $4.1 million in 2015. Assets under management rose higher reaching $1.3 billion in 2018, Cerulli said, citing figures from Morningstar. 

“The growth could be attributed to the [South Korean] Financial Services Commission’s move in 2015 to allow retirement pension schemes to invest up to 70 per cent of their assets in high-risk assets, including equities, from 40 per cent previously. The limit was further raised to 80 per cent in September 2018. The move gives asset managers the flexibility to allocate more to equities for their TDFs,” it said. 

The report said that Chinese authorities have launched several initiatives to grow its third-pillar pension space. In March last year, the China Securities Regulatory Commission (CSRC) finalised guidelines for pension target securities funds, allowing managers to launch pension target funds as either target date or target risk funds of funds. As of 28 December 2018, the total number of CSRC-approved pension target funds stood at 40, it said. 

The stock market fall last year hit sales of these funds; lack of awareness of retirement products and investors’ trading mentality were also drag factors. 

“Besides educating investors on retirement planning, asset managers will need to work closely with local distributors and build good track records to convince investors to invest in such funds,” Cerulli said. Cerulli turned to Taiwan and said that the country had seen few recent pension reforms, but the Securities Investment Trust and Consulting Association would be implementing the “Experimental Labor Pension Fund Member’s Choice Platform” this July. That measure is aimed at 10,000 people on online fund supermarket platform FundRich. 

“If the two-year pilot is successful, it may accelerate demand for TDFs. Target maturity bond funds have seen good take-up recently, with Invesco and Schroders being the frontrunners in this relatively new market. Both firms, together with Eastspring, have launched the only four onshore target maturity products in Taiwan that have raised more than NT$10 billion ($324 million) during their launch periods.