Retail Funds Impact Asset Valuations
NEW YORK, Oct 9 – An influx of retail funds into the market is expected to lead asset managers to reevaluate their portfolios more frequently, according to KKR. The head of client services pointed out that portfolio valuations for private market companies have faced increasing scrutiny over the past year. This ongoing pressure stems from difficulties in selling assets, limiting the ability to return cash to their primary investors, who tend to be large institutional players.
With the support of President Trump, KKR and other asset managers are looking to direct a significant portion of the approximately $12 trillion in 401(k) retirement plans into alternative assets like real estate and cryptocurrencies. As KKR’s Eric Mogeloff mentioned on a podcast, there’s an increasing demand for information, which could push for more frequent pricing adjustments.
Private equity assets differ from traditional publicly traded stock and bond funds in that they usually remain locked for extended periods, with pricing updates typically occurring monthly or quarterly. This can mask volatility, attracting more professional investors who accept slower transactions and less frequent price updates.
Mogeloff noted that the current infrastructure for defined contribution (DC) plans relies heavily on a system meant for open markets with daily pricing and liquidity. He expressed concern that more regular trading would necessitate daily pricing, which presents a significant challenge. He suggested that the industry may need to adapt, either modifying the structure of 401(k) plans or limiting transactions to a monthly schedule.
Funds often determine their valuations based on trades, comparisons with other firms, and discounted cash flows—a process known as marking. While some alternative asset managers believe that significant participation from 401(k) savers will take time, companies like KKR are partnering with organizations managing these programs to gain traction in this sector.
Mogeloff is optimistic that in a decade, there will be a considerable allocation of private market assets within the DC market.
