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State of Play
If you have a 401(k), there is a good chance you have invested in Collective Investment Trusts (“CITs”) without knowing it. And there is an even better chance you have never heard of the PE-owned company that dominates the CIT market.
Source: P&I, Sway Research
With $302.8 billion in assets under administration (“AUA”), Great Gray is the largest pure-play independent CIT trustee in the U.S. And under Madison Dearborn Partners (“MDP”), they’ve vertically integrated to completely dominate this market.
Today we’re taking a break from roll-up stories to dive into niche private equity investing. Let’s dig in.
First, What Even Is a CIT?
Definition & Examples
Here is the formal definition: “a CIT is a pooled investment vehicle maintained by a bank or trust company, available exclusively to tax-qualified retirement plans under ERISA (e.g., 401k). It functions similarly to a mutual fund, but operates under an entirely different legal framework where they are regulated by the OCC not the SEC.”
More simply, below are some examples that I am sure you saw (or similar options) from your 401k provider. Great Gray powers over 600 of them.
AB Multi-Manager Retirement Trust 2010 Fund (W Series) |
BlackRock LifePath Dynamic 2030 Fund |
BlackRock Mid Cap Equity Index Fund |
BlackRock U.S. TIPS Index Fund |
Janus Henderson Enterprise Collective Fund |
The 401k Value Chain
A CIT is a layered structure with distinct participants at each level:
Trust company (e.g., Great Gray): Holds the OCC trust charter, serves as ERISA 3(38) fiduciary, maintains legal and regulatory infrastructure, and contracts with sub-advisors.
Sub-advisor (e.g., BlackRock, T. Rowe Price, Wellington): Executes day-to-day security selection under an investment policy statement approved by the trustee.
Custodian (e.g., State Street, Northern Trust): Safekeeps securities, calculates daily NAV, processes settlements through NSCC
Recordkeeper (e.g., Fidelity, Empower, Vanguard): Maintains participant account ledgers, processes payroll contributions
Plan advisor (e.g., CAPTRUST): Selects and monitors fund menu options on behalf of the plan sponsor
The key insight is this: the trust company sits at the top of this stack as the legal and regulatory layer, but all of the operationally intensive functions (e.g., security selection, custody, recordkeeping) are outsourced to other parties. They are effectively just a shell company through which others in the 401k value chain do business to meet regulatory requirements.
So Why Do They Exist?
The cost advantage of CITs over mutual funds is the primary driver of the shift. By eliminating SEC registration requirements, retail prospectuses, independent boards, and 12b-1 distribution fees, CITs strip away the entire administrative cost structure of serving retail investors.
The result? Lower fees leading to increasing market share of CITs at the expense of mutual funds.
Source: ICI, Great Gray Trust
While 10-40 bps sound tiny, these fee differences can have meaningful implications for individuals over the course of their 30-year careers. Here is an illustrative excel model showing how these fees can drive $100k difference in retirement savings for an average individual.
If you’re logging into your 401k retirement account to switch from mutual funds to CITs, you’re welcome!
Case Study: Great Gray Trust
Before we dig into the investment thesis, let’s take a quick look at how MDP’s portfolio company Great Gray Trust came about. We will also discuss why some of their acquisitions were ingenuous.
CIT History
It took about 3 years for all regulatory hurdles to clear since the birth of CITs in 2019. 6 months thereafter, MDP made a big bet with a carveout from M&T bank.
Date | Event | What Happened |
Sep 2019 | Nasdaq tickers for 200+ CITs | Wilmington Trust registers the first-ever standardized ticker symbols for CITs. At the time: $46B+ in CIT assets, 50+ sub-advisors. |
Sep 2022 | BoardingPass launches | Industry's first digital CIT participation agreement platform. Reduces onboarding from 1–5 business days to same-day. Removes the last major friction point blocking mid-market advisor adoption. |
M&D Ownership & Acquisitions
Date | Event | What Happened |
Apr 2023 | MDP acquires from M&T Bank | MDP carves out CIT business from M&T bank and rebrands as Great Gray Trust Company. The thesis: CIT is a high-growth, retail focused product that is misaligned with M&T’s commercial bank business. |
Feb 2025 | RPAG acquisition | Great Gray acquires the Retirement Plan Advisory Group, an existing MDP portfolio company. We will discuss why this happened in the investment thesis section. |
Nov 2025 | flexPATH sub-advisory assets acquired | Great Gray internalizes investment management for flexPATH strategies, capturing the full fee stack, significantly expanding TAM. |
Dec 2025 | $302.8B AUA, 80+ sub-advisors | ~45% AUA growth from the April 2023 acquisition close. |
While financials are not publicly available, their AUA growth implies a ~20% CAGR top-line growth. But as we will discuss, the flow through EBITDA margin for incremental revenue in this model is what makes this particular thesis exciting.
Source: Ropes & Gray, Great Gray Trust
Are You a Mid-Career M&A Professional?
After graduating 60 participants from our Q1 cohort, including one participant who has already secured a funding commitment from an investor partner in the program, we’re opening applications for the next cohort of Road To Carry Accelerator next week.
What is it:
- An 8-week, cohort-based accelerator transforming mid-career investors and operators into acquisition entrepreneurs
- Part-time, async compatible, 100% online with in-person events, strict confidentiality of participants enforced
- Taught by investors and vendor partners with proven acquisition track records
- Select participants will pitch their acquisition theses to our network of investors to begin fundraising conversations
Who is it for:
- PE, Corp. Dev. M&A, and Operating professionals with 7-15+ years of experience
- Ambitious professionals looking to build large buy-and-build platforms
- Current and aspiring acquisition entrepreneurs seeking investor support, community, and a practical roadmap
Our investor network spans independent sponsor, HoldCo, search, and family office capital. Many are looking to deploy 8-figure equity checks behind the right team to build 9-figure platforms.
We want to help accelerate your road to carry via acquisition entrepreneurship.
Applications open next week.
Investment Thesis
This might be MDP’s long-kept secret, but here we go:
1. Massive & Growing Addressable Market
The U.S. direct contribution retirement (e.g., 401k, as opposed to pensions) market has grown to $13.4 trillion as of Q4 2025. The ongoing shift from employer-managed pensions to individual contribution plans has been building for decades and is not slowing.
Source: St. Louis Fed.
Within that market, CITs are taking share every year. The target-date fund (“TDF”) market alone is $4.8 trillion. The full direct contribution market is multiples larger.
Source: P&I, Sway Research
2. Phenomenal Cash Cow Economics
(Note: below P&L is inferred from publicly available data. While the data is not going to be entirely accurate, it should help you directionally understand the economics)
Great Gray's revenue model is simple: a trustee fee of approximately 5 basis points (0.05%) on AUA. At $302.8B AUA, that implies gross trustee revenue of approximately $151M.
The core infrastructure (the OCC trust charter, NSCC trading integrations, legal compliance teams, and BoardingPass technology) is largely fixed. Once built, the marginal cost of onboarding an additional plan is effectively zero: a few hours of legal documentation review and a digital workflow.
For reference, here is how Great Gray's margins compare to similar fee-based financial infrastructure businesses:
Company | Business Model | Margin |
BNY Mellon Markets & Wealth | Pershing / clearance infrastructure, fee-based | 49% operating margin |
Top RIAs | AUM fee-based | ~40% pre-tax margin |
Great Gray (illustrative) | 5 bps AUA trustee fee | ~40-55% EBITDA (estimated) |
3. Captive Audience via Software Distribution
The acquisition of RPAG in early 2025 was the most strategically significant move MDP has made in the Great Gray investment. RPAG is a practice management software and benchmarking platform used by retirement plan advisors.
Key stat: RPAG’s network reaches $1.6 trillion in assets, 152,000 plans, and 15 million participants.
The commercial logic is straightforward. The bottleneck in growing Great Gray's AUA is not the trust infrastructure. It’s getting plan advisors to recommend Great Gray CITs over competitors. RPAG solves that problem by embedding Great Gray directly into the advisor's existing workflow:
BoardingPass integration within RPAG: An advisor can screen a fund, recommend it, and execute the full ERISA participation agreement without leaving the RPAG platform. The onboarding friction that historically deterred mid-market advisors is eliminated entirely
Technology Partnership Program: RPAG-affiliated advisors receive exclusive access to discounted Great Gray CIT fee classes, creating a direct financial incentive to route plan business through the platform
AI-powered ERISA advisory tool: RPAG's Auto Assistant provides advisors with instant answers to ERISA compliance questions within the platform, deepening daily utility
An advisor embedded in RPAG's benchmarking tools, onboarding workflows, and discounted fee access has zero practical incentive to route business to a competing trustee.
If Great Gray can capture 10% of RPAG’s assets under influence, the incremental revenue translates into over $700M of implied enterprise value creation.
Looking Ahead
It would be incomplete not to mention the strategic tension embedded in Great Gray's model going forward.
Great Gray's value proposition to its 89 sub-advisors is that it is a neutral infrastructure provider. That open-architecture positioning is why BlackRock, T. Rowe Price, Wellington, PIMCO, Goldman Sachs, and 84 others are on the platform together.
The recent flexPATH acquisition changes that calculus. Great Gray has now internalized sub-advisory functions for a set of strategies, in order to capture the full fee stack. That is good for economics. But each strategy Great Gray brings in-house is one more data point that erodes the "we don't compete with you" story for its sub-advisors.
How MDP manages that tension will shape the remainder of the story. But so far, so good.
The lesson here is that creating a dominant player in a niche market via strategic M&A can create just as great of outcomes as roll ups. Acquisition entrepreneurs, be creative out there!
Any topics I should cover next? Share thoughts with [email protected]
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