Navigating the Future of Retirement: The Strategic Edge of Multimanager Target-Date Funds in 2025

The investment landscape in 2025 is marked by a quiet revolution in retirement planning. Target-date funds (TDFs), once seen as a convenient but generic solution, have evolved into sophisticated tools that now dominate retirement portfolios. By the end of 2024, TDFs accounted for over $1.5 trillion in assets, with 37 funds targeting 2025 having delivered returns that exceeded the models of a decade prior. Yet, the real story lies in how these funds are being restructured to navigate a world of heightened volatility and shifting investor priorities. At the heart of this transformation is the rise of multimanager frameworks—a strategy that promises to mitigate risk while enhancing long-term returns.

The Cost Efficiency Imperative

The shift from mutual funds to collective investment trusts (CITs) has been a defining trend. By 2024, CITs held 52% of TDF assets, driven by their lower expense ratios and the $39.8 billion in conversions from mutual funds in 2024 alone. This move reflects a broader investor demand for cost efficiency. Index-based TDFs, which now constitute 53% of assets, have average expense ratios 53 basis points lower than active strategies and 32 basis points lower than blended portfolios. The savings are not trivial; over a 15-year period, these differences compound into meaningful gains for retirees.

Multimanager Frameworks: A Hedge Against Uncertainty

The strategic value of multimanager frameworks becomes evident when considering the volatility of 2025. These frameworks combine active and passive strategies, allowing TDFs to diversify risk across multiple asset classes and managers. For instance, the Voya Target Solution Trust Series employs over a decade of experience in an open architecture model, leveraging the expertise of multiple managers to balance growth and risk. Similarly, Schwab's glide paths adjust from 97% equities to 28% equities over 30 years, ensuring a gradual shift toward conservatism.

Empirical data from hedge funds in 2025 underscores the effectiveness of this approach. In February 2025, while the Fund Weighted Composite Index fell by 0.47%, the Multi-Manager/Pod Shop Index rose 0.92%. This resilience highlights how multimanager strategies can offset the shortcomings of single-manager approaches during market turbulence. By distributing capital across diverse strategies—long/short equity, macro, and quantitative—TDFs can better withstand sector-specific shocks.

The Convergence of Glide Paths and the Need for Innovation

Despite their advantages, TDFs face a challenge: the convergence of glide paths. Over the past 15 years, the differences between the most and least aggressive TDFs have narrowed, with equity allocations remaining higher for longer. While this standardization offers predictability, it risks homogenizing returns and reducing differentiation. Blended portfolios, which combine active and passive management, represent only 5% of assets, suggesting that investors remain wary of complexity.

However, innovation is emerging. Firms like Amundi and Invesco are integrating AI to personalize glide paths and optimize asset allocation. These technologies enable TDFs to adapt dynamically to market conditions and investor risk profiles, potentially outperforming static strategies. For example, adaptive glide paths that adjust based on accumulated wealth—rather than age alone—can reduce the standard deviation of terminal wealth, as noted by Forsyth et al. (2017).

Investment Advice for 2025

For investors, the takeaway is clear: multimanager TDFs offer a compelling balance of cost efficiency and risk mitigation. Those prioritizing long-term stability should consider index-based CITs, which combine low fees with broad diversification. For those seeking a middle ground, blended portfolios provide a hedge against market swings without sacrificing cost advantages.

Plan sponsors, meanwhile, must weigh the trade-offs between transparency and cost. While CITs lack the regulatory reporting of mutual funds, their lower fees make them an attractive option for large institutional investors. The key is to ensure that the underlying managers adhere to rigorous standards, even in less transparent structures.

Conclusion

The 2025 TDF landscape is a testament to the power of strategic innovation. By embracing multimanager frameworks, investors can navigate a volatile market while staying on track for retirement. As the industry continues to evolve, the focus will remain on balancing cost, diversification, and adaptability—ensuring that TDFs remain not just a default option, but a default winner.