As alternative investments continue to capture the attention of investors looking for unique opportunities outside traditional asset classes, there is one key arena where they have yet to make significant inroads: workplace retirement plans. According to a recent study by Cerulli Associates, the illiquid and opaque nature of many alternative investments poses a challenge for defined contribution plan sponsors seeking to meet regulatory requirements and provide attractive options for participants.
In a survey of DC investment-only asset managers, Cerulli found that over half have no plans to offer private market fund options in defined contribution plans, citing concerns about fees, liquidity, and fiduciary responsibilities. Despite the growing interest in alternatives across institutional investors, DC plans have remained wary of incorporating private equity and real estate investments into their menus.
However, there may be a silver lining on the horizon. Cerulli suggests that real estate, already considered an alternative in DC plans, could become a more viable option due to its long-term investment horizon. Additionally, there is a possibility that private market investments could find a home in multi-asset-class products, potentially including target-date funds.
While the road to integrating alternative investments into DC plans may be bumpy, the potential benefits for participants and sponsors alike are clear. As the industry continues to evolve, asset managers are exploring innovative ways to bridge the gap between traditional retirement offerings and the diverse opportunities offered by private markets. The future of workplace retirement investing may very well include a diverse array of alternatives, providing participants with access to a broader range of investment options to help secure their financial futures.
