Private Assets in 401(k) Plans: A Shift on the Horizon
At a recent investor meeting, Marc Rowan, the CEO of Apollo Global Management, expressed optimism about integrating private assets into American retirement accounts. He mentioned, “I would hope to be able to sell the private market to the 401(k) system,” highlighting the theme of merging private and public markets at the Morningstar Investment Conference in Chicago. This sentiment isn’t entirely new to billionaires at the helm of investment firms, but it does signal a significant turning point.
The notion of allowing private market investments within 401(k) plans gained traction back in 2020 when the Department of Labor, under the previous administration, issued guidance suggesting that such investments could be appropriate under certain conditions. This guidance was reaffirmed by the current administration, but now it seems to be expanding. According to the Investment Company Institute, assets in 401(k) plans amount to about $8.7 trillion, with retirement vehicles being a significant area of interest.
In recent developments, BlackRock unveiled its 401(k) Target Date Fund, set to launch in the first half of 2026, which will allocate between 5% and 20% to private investments. Empower, another major player in retirement planning, plans to follow suit by incorporating private assets into some accounts later this year. Interestingly, this initiative comes amid an effort to broaden the definition of “certified investors,” allowing more individuals to engage with private market opportunities.
Discussions in the retirement planning industry have grown increasingly intense. “This topic is anger, so to speak,” remarked Bonnie Treichel, Chief Solutions Director at Endeavor Retirement. Fred Reish, a partner at Faegre Drinker, indicated that change isn’t just on the horizon—it’s likely on the near future. Current initiatives typically involve pooled investment structures like collective trusts, which are overseen by professional experts, rather than letting individual employees decide on standalone investments.
One popular approach includes adding private assets to target date funds, which adjust allocations based on retirement dates. This move aims to address regulatory worries associated with private investments—traditionally seen as risky due to factors like opaqueness, high fees, and long lock-up periods. The 2020 Labor Bureau’s guidance also underscored the need for careful investment choices, warning that trustees could face personal liability for any poor decisions, which is understandably concerning.
For instance, earlier this year, Intel faced legal challenges regarding alternative asset usage in retirement plans. Larger plan sponsors, with the resources to vet private investments, may transition to these options faster than smaller businesses can. Despite the excitement around adding private assets to 401(k) plans, there are still significant concerns. Advocates note that the number of investable companies has dwindled over the past 30 years. In fact, the largest public firms now represent a substantial portion of the market, with the top ten companies capturing around 35% of total market capitalization in 2024.
This trend means that many companies are maintaining their private status for longer, which, while enabling them to avoid some scrutiny, makes it challenging for investors to catch the next big opportunity like Microsoft or Apple from the ground up. Advocates argue that exposing 401(k) plans to private assets could meet the demand for diverse investment avenues. However, skeptics worry that the associated risks might overshadow potential benefits. Rowan himself noted the challenges of liquidity with private investments, pointing out, “Being private doesn’t improve that.” Ultimately, the goal remains to generate significant returns, but the path is still fraught with uncertainties.
