Plan Sponsors Express Interest in Private Market Assets
Defined contribution (DC) plan sponsors are showing interest in private market assets, observes new research out from Cerulli Associates.
According to the latest Cerulli Edge, employers display “meaningful” interest in private market assets within DC plans, and particularly when used with target-date products or managed accounts. Thirty-seven percent of plan sponsors reported being “very interested” in learning more about the benefits and setbacks of target-date and managed account options that allocate to private market assets.
This is likely because many employers are already familiar with target-date options, Cerulli observes. According to the findings, 78% of employers utilize the vehicle as a qualified default investment alternative (QDIA).
Interest in private market assets was especially prevalent among large employers, as 57% of plan sponsors with $250 million to $1 billion in plan assets expressed strong interest in understanding more about the private assets.
The growing attention is likely to turn into adoption, albeit slow, predict asset managers and DC consultants. According to Cerulli, these professionals forecast that about 7% of employers will have a target-date or managed account that allots funds to private market assets within five years. By 2035, this number could double, or nearly triple, to 15% or 20% of plan sponsors.
The first plans to adopt will likely be large plan sponsors, given their initial enthusiasm and availability of resources.
Cerulli notes that continuing concerns over litigation risk and fees have stalled plan sponsors from adoption, along with a hesitancy in switching target-date managers.
“Interest does not equal immediate adoption,” says Chris Bailey, director at Cerulli. “Sponsors tell Cerulli they are concerned about fees and the risk of litigation over adding such investment options to their plan menus. In addition, sponsors rarely change their target-date manager. According to DC consultants, fewer than 5% of plans changed their target-date investment in the past 12 months.”
Asset managers who want to work with plan sponsors will need to focus on education and prioritize participant outcomes, Cerulli reports.
“If a plan sponsor wants to add private markets assets to their lineup, professionally managed, asset allocation solutions are ideal to provide participants with allocations and asset classes aligned with their situations,” said Bailey. “Asset managers can start the conversation by addressing concerns, emphasizing how participants are not going to directly invest in private equity through their retirement plans, and the potential for improved outcomes. Quelling these concerns could open the door to constructive conversations about the new products managers are bringing to market.”
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.