Retirement savers are increasingly interested in investing in private assets in their employer-provided retirement plans, hoping to achieve higher returns and diversification. However, plan sponsors are proceeding with caution, as highlighted in a recent report from consulting firm Cerulli Associates.
According to the report, only a small number of plans are introducing offerings this year, and it may take up to a decade before even 20% of defined-contribution plans incorporate target-date products or managed accounts that allocate to private market assets. The enthusiasm for private investments seems to outweigh the reality of when and how these investments, including private equity, venture capital, hedge funds, and real estate, will become mainstream.
Chris Bailey, a director at Cerulli, explained that while sponsors are interested in these options, concerns about fees and potential litigation are slowing down the adoption process. More than 8 in 10 plan sponsors cited cost as a significant concern, along with worries about liquidity and valuations.
President Trump’s executive order last summer instructed the Department of Labor and the Securities and Exchange Commission to provide guidance for defined-contribution plans to incorporate private assets, sparking interest among plan sponsors. Some major players in the financial industry, such as Goldman Sachs, BlackRock, Empower, Voya Financial, and Blackstone, have announced plans to offer private assets in retirement portfolios.
Despite the growing interest from retirement savers, many plan sponsors are not yet on board with integrating private market assets. The industry consensus is that there is currently no significant demand for these options among sponsors.
While the path to mainstream adoption may be slow, the researchers at Cerulli believe that private market assets will eventually be incorporated into various professionally managed investment options. This integration will likely be done by the plan sponsor’s asset manager, ensuring that participants are not directly investing in private market assets.
In conclusion, while retirement savers are eager to explore private assets in their retirement plans, plan sponsors are taking a cautious approach due to concerns about fees, litigation, and overall demand. The gradual adoption of private investments in retirement portfolios is expected to unfold over the next decade, providing higher returns and diversification opportunities for savers in the long run.
