Goldman Sachs and T. Rowe Price Collaborate on 401(k) Alternatives
Goldman Sachs and T. Rowe Price are teaming up to broaden access to alternative assets for those participating in 401(k) plans, marking a significant move in the industry. On Thursday, they announced their partnership aimed at providing retail investors with opportunities in the private market. This comes just a month after an executive order was signed to enhance access to alternatives like cryptocurrency and private equity within retirement accounts, under the framework of the Employee Retirement Income Security Act of 1974.
Bonnie Treichel, an attorney specializing in ERISA, expressed optimism that as public companies become less frequent and the private market expands, more firms might explore private assets. A report by Preqin, which is affiliated with BlackRock, suggests that alternative assets could balloon to $30 trillion by 2030. Treichel noted in an email to CNBC, “The convergence of market growth and recent regulatory changes is likely to spur collaborations focused on new product development.”
Goldman Sachs and T. Rowe Price are preparing to introduce target date strategies along with managed accounts. They aim to roll out a target date solution by mid-2026. Bank of America considers this strategy, sometimes referred to as the “Holy Grail,” as a promising way to integrate alternative assets for most investors. Target date funds generally adjust their asset allocations based on the investor’s expected retirement date and are usually the default investment option.
Craig Siegenthaler, an analyst at Bank of America, indicated, “Target date funds are typically managed by experienced investment firms, blending public assets to maintain liquidity.” Last year saw investments in target date funds surpassing $4 trillion, reaching an all-time high. Participants will have to opt-in for these new offerings, which traditionally operate as default selections.
While there are frequently higher fees associated with alternative investments, index-based target date funds usually have an expense ratio below 0.10%. Also, many plan sponsors might not consider adding these investments until they have a solid track record, which could be a hurdle for T. Rowe Price’s new offerings. Siegenthaler cautioned that investors may not be eager to adopt alternative strategies due to the complexities involved.
Ultimately, decisions about including options like these must be made carefully by plan trustees, aiming to provide the most beneficial investment lineup for participants. Treichel highlighted the fiduciary responsibility involved in understanding these options before incorporating them into retirement plans, emphasizing the need for a well-managed decision process.
