Private market investing seems to be everywhere these days. That is, except for the roughly 130 million Americans in defined contribution plans.

In a recently published proof point that alternative private market investing is moving downstream from institutional investors to individuals, Blackstone Private Wealth Solutions noted that 90% of the 450 financial advisers it surveyed have allocated some portion of clients’ portfolios to private market investments. Over the weekend, BlackRock Inc. furthered the conversation by putting its money where the market is and agreeing to pay $3.2 billion to acquire Preqin Ltd., acquiring quick entry into the “fast-growing private markets data segment,” according to an announcement.

In defined contribution plans, however, private investing either via private markets or equity has been a much slower mover than in high-net-worth and family-office businesses. Fiduciary concerns about liquidity to allow plan participants to access their investments and the need for daily valuation have been a holdup. But the drumbeat for private market investing may be creating a moment for asset manager proponents of offering the investment class to DC participants.

“For decades, private markets have been reserved for institutions or very-high-net-worth investors,” says Dan Cahill, head of defined contribution client engagement and a member of management at Partners Group, which has a private markets DC investment offering. “These investors, particularly through [defined benefit] plans, have taken advantage of the enhanced returns and increased diversification PE can offer, but with DC plans now the more common retirement savings vehicles for plan sponsors, it is important, and only fair, that 401(k) participants have access to the best investment opportunities available.”

On Monday, Legal & General, a workplace pension provider in the U.K., unveiled a private markets access fund available for 5.2 million DC participants as a way to give them exposure to “clean energy, affordable housing, university spinouts, and critical infrastructure,” according to the announcement. In the U.S., the noise among DC investors is more muted, but other players such as Stepstone Group have argued that advancements in both private markets and DC fund options have made private markets more accessible to the masses.

Partners Group’s approach to bringing private markets to DC plans has been through inclusion in professionally managed portfolios, like target-date funds or managed accounts. Partners Group’s Evergreen Funds is offered through a collective investment trust vehicle for DC plans. That “CIT wrapper” helps solve for the daily valuation and liquidity needs of a DC plan, Cahill says, and helps it fit into the TDF.

“There’s a professional manager at the TDF or managed-account level deciding on the allocation and handling all the intricacies involved in managing private markets assets,” Cahill says.

Cahill believes the argument has grown for private market investing in part due to a sense that public markets are now limited to a relatively distinct universe that excludes much of the growth among private firms. Only about 15% of U.S. companies with revenue of more than $100 million are public, he notes, so the majority of profitable companies—about 85%—cannot be accessed through traditional trading platforms.

“Institutional investors and defined benefit plans have been tapping this market for a long time, with DC participants largely on the sidelines,” he says. “Even small exposure to these companies can help [DC participants] save more.”

Testing the Waters

Traction for alternative investments of any kind, let alone private markets, has been slow, according to market indicators. Only 2.2% of DC plan sponsors offer alternative investment exposure such as private equity in their plans, according to the 2024 DC Benchmarking Survey from PLANSPONSOR, a sister publication of PLANADVISER.

Chris Karam, a managing partner and the CIO at Finspire, is “not optimistic” that private investments will make their way into DC plans “until we collectively have addressed the pressing issues of today, such as incorporating retirement income solutions.”

The adviser does, however, see a future for private equity and credit in DC plans in part due to the “continuing divergence” in which large, publicly traded companies are focused on “intangible assets” that many DC participant investors may not trust. Meanwhile, companies with more “tangible” business models often remain private due to “the regulatory complexities of going public versus remaining private.”

Meanwhile, advancements in DC investment systems may further the potential for private investments to make it into qualified plans, according to Karam.

“The middleware infrastructure currently enabling retirement income solutions in DC plans, coupled with managed account technology, may be useful tools for private fund sponsors to connect participants with private markets access,” he says. “We would be interested in using private funds in the future after we educate committees about the important nuances [liquidity, time horizon, risk profiles, capital calls, etc.] of how they differ from the public markets.”

Jim Sampson, director of retirement advisory services at Hilb Group Retirement Services, says he has long wished retirement plan participants could gain access to the booming private equity markets, but the realities of qualified plan advisement does not make it possible.

“Any time that we talk about investments that are off the grid and outside the basics, I get really worried about it for the folks who may not understand what they’re investing in,” Sampson says. “When we think about being a fiduciary to an employer’s plan, part of our job is to look out for them … It all comes down to the concept of [managing] other people’s money: When you are taking care of other people’s money, you have to be over-prudent.”

A private market investment vehicle through CIT offering is compelling, Sampson says, because it may fix the “functionality” needed for DC investing. Even so, as a plan fiduciary there must be a careful assessment of the risk for participants who are being defaulted into their savings, he notes.

Old, But New Again

Partners Group’s private market DC offering has been around since 2015, and the primary audience to date has been defined benefit plans. But today, as interest in private markets grows among investment advisories for individuals, that know-how will meet with DC plan consultants looking to take advantage of the market for plan sponsors and participants, according to Cahill.

“Many of these advisers are now becoming more ingrained into utilizing private markets capabilities for high-net-worth individuals,” Cahill says. Meanwhile, “the largest target-date-fund families, as well as consultants of all sizes, are considering including private markets, either through existing retirement savings products or building out new offerings—the two will end up meeting.”

Blackstone’s survey noted that, for individual financial advisement, portfolio diversification is the key reason for private market offerings at 71% of those surveyed, followed by lower volatility (13%), higher returns (11%) and higher income generation (5%).

In defined contribution plans, Cahill calls for continued education of “both professional buyers and individual investors so they understand the value of private market asset classes and how they can be included in retirement portfolios,” Cahill says. “The necessary structural innovation has been solved for, and now it’s simply about execution.”