Private Market Investing: Opening Up Opportunities for Defined Contribution Plans

Private market investing is a hot topic these days, but it seems to be missing from the retirement plans of millions of Americans. While institutional investors and high-net-worth individuals have been diving into private market investments, defined contribution plans have been slower to adopt this strategy. However, recent developments suggest that the tide may be turning.

According to a survey by Blackstone Private Wealth Solutions, 90% of financial advisers have allocated some portion of their clients’ portfolios to private market investments. Additionally, BlackRock Inc. recently announced a $3.2 billion acquisition of Preqin Ltd., signaling a growing interest in the private markets data segment.

In the U.K., Legal & General unveiled a private markets access fund for 5.2 million DC participants, offering exposure to clean energy, affordable housing, and other sectors. In the U.S., companies like Stepstone Group are making strides in making private markets more accessible to the masses.

Partners Group, a firm offering private markets DC investment options, believes that DC participants deserve access to the same investment opportunities as institutional investors. By including private markets in professionally managed portfolios like target-date funds, they aim to provide participants with enhanced returns and increased diversification.

While the adoption of private market investments in DC plans has been slow, there is growing interest in alternative investments like private equity and credit. Advances in DC investment systems and managed account technology may pave the way for private funds to enter qualified plans.

However, some experts caution that careful consideration must be given to the risks associated with private market investments, especially for participants who may not fully understand them. As fiduciaries, it is essential to prioritize the financial well-being of plan participants and ensure that their investments are aligned with their goals and risk tolerance.

Overall, the drumbeat for private market investing in DC plans is getting louder, and with the right education and structural innovation, it may soon become a mainstream option for retirement savings. As the landscape evolves, it will be crucial for both professional buyers and individual investors to understand the value of private market asset classes and how they can be integrated into retirement portfolios.