Terms and Conditions

Please read these conditions carefully before using this site. By using this site, you signify your assent to the following terms and conditions of use without limitation or qualification. In particular, you consent to the use of all cookies on this website for the purposes described in the terms of use. If you do not agree to these terms or to the use of cookies as described below, do not use this site. AllianceBernstein may at any time revise these terms of use. You are bound by any such revisions and should therefore periodically visit this page to review the then current terms of use to which you are bound. This site is for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy any security which may be referenced herein.

Terms Of Use

This site is solely intended for use by professional/institutional investors and institutional-investment industry consultants.

Do you wish to continue?

 

Clearing Hurdles: Landing Private Assets in DC Plans

July 14, 2025
4 min read
David Hutchins, FIA| Portfolio Manager—Multi-Asset Solutions
Elena Wang| Portfolio Manager—Multi-Asset Solutions
Christopher Nikolich| Head of Glide Path Strategies (US)—Multi-Asset Solutions

Private assets have much to offer. What’s holding plan sponsors back?

Target-date solutions play a critical role in retirement outcomes, and we believe adding private assets to the glide path may boost return potential and diversification.

But while interest in and access to private markets have grown over the past decade, these assets remain underrepresented in defined contribution (DC) retirement plans.

Why? Our conversations with plan sponsors have focused on three key fiduciary hurdles: higher expense ratios, litigation risk and liquidity needs. We think sponsors can clear all of them, but doing so requires familiarity with the implications of adding a private dimension.

Of Costs and Benefits    

Let’s start with fees. Adding private strategies to a DC allocation would typically raise the portfolio’s expense ratio. This is partly a result of the added complexity of private strategies, which require active, hands-on management to capture return potential.

Of course, it’s up to plan fiduciaries to determine whether a strategy’s return history—and potential future returns—justify the added cost. Overpaying for alpha potential can harm outcomes for plan participants. But once sponsors recognize that the strategy offers value for money, dwelling on how costs stack up to public fees may obscure some of the benefits private assets offer.

We think plan sponsors should focus on the value that a given strategy offers in exchange for the fee it carries. That includes whether a private strategy has consistently delivered returns in excess of public market equivalents on a net-of-fees basis. By that metric, performance has been strong in recent years (Display).

Private Assets May Enhance Return Potential After Fees
Three bar charts show net-of-fee returns for private equity, real estate, credit exceeding returns on public equivalents.

Historical analysis and current forecasts do not guarantee future results.
IRR: internal rate of return. REIT: real estate investment trust
Equity: Performance is as of September 30, 2024. Public equity is represented by the Russell 3000 Index. Private equity is represented by the Cambridge Associates LLC US Private Equity Index (pool horizon return, net of fees, expenses and carried interest). Real estate: Public REITs are represented by the FTSE EPRA/NAREIT US Index. Private real estate is represented by an AB sample custom target-date fund private real estate component (net of fees). Credit: Performance is as of December 31, 2024. Public credit is represented by the Bloomberg Global High Yield Corporate Index total return compound annual growth rates. Private credit is represented by PitchBook Private Debt IRRs (net of fees and carry).
Source: Bloomberg, Cambridge Associates, FTSE Russell, PitchBook, S&P and AllianceBernstein (AB)

Adding privates to the mix may also broaden the opportunity set. As the following Display shows, fewer than 15% of companies with $100 million or more in revenue are publicly traded. Credit growth, too, is increasingly coming from private, nonbank sources.

Expanding the Investment Universe
15% of $100 million revenue companies are public and nonbanks provding more credit than banks to nonfinancial sector

Historical analysis and current forecasts do not guarantee future results.
Left chart: S&P Capital IQ data is as of December 2022; the most recent data from Statistics of US Businesses (2017) was used to triangulate S&P Capital IQ estimates for privately held company counts by revenue band. Right chart: through June 2022
Source: Bain & Company, BICS, S&P Capital IQ, US Census Bureau and AB

Meanwhile, correlations between public stocks and bonds have risen in recent years, and with inflation likely to stay higher for longer, these assets alone may not generate enough purchasing power for plan participants when they retire, or provide the diversification they need to manage risk.

Legal Arguments

Sponsors have frequently cited litigation risk as another potential impediment to broader private asset adoption. But legal challenges are frequently tied to fee structure and whether plan participants are getting adequate value for the cost of their investments.

We think sponsors can seek to overcome this hurdle by adopting certain safeguards, including a thoroughly documented due diligence process that governs the selection and inclusion of private strategies for a given plan. In our view, fiduciaries should prioritize doing the right thing for participants.

What’s more, the U.S. Department of Labor issued an information letter regarding private equity investments in defined contribution plans in 2020 and a supplemental statement in 2021 providing guidance on the inclusion of private equity investments in target-date funds and the fiduciary responsibility of plan sponsors. Both documents are interpreted by some in the industry to apply broadly to private investments in DC plans.

Natural Liquidity

The relatively illiquid nature of private investments is a concern for some plan sponsors, too. But even on this score, many private investment strategies are becoming more DC-friendly, thanks to three inherent features that create natural liquidity.

First, target-date funds are diversified pools of assets that belong to participants across a wide range of ages. This is important. When older participants need to make withdrawals, younger ones continue to contribute regularly through payroll deductions, naturally replenishing the fund’s liquidity. This ongoing inflow from the young helps to balance out the liquidity needs of retirees.

Second, target-date funds are multi-asset portfolios that typically include public assets, which can be used as an additional source of liquidity when needed.

Finally, the proliferation of evergreen fund structures—private investment vehicles with no fixed term, periodic liquidity windows and imbedded allocations to liquid investments—has enhanced the ability of private strategies to meet participant liquidity needs.

In Search of Better Outcomes

Ultimately, the decision on adding a private dimension to target-date glide paths should depend on the answer to a fundamental question: Does adding private exposure have the potential to improve expected outcomes?

To answer “yes,” we think plan sponsors should be confident that the additional risks and costs justify the potential rewards from integrating a private dimension in target-date glide paths.

The views expressed herein do not constitute research, investment advice or trade recommendations, and do not necessarily represent the views of all AB portfolio-management teams, and are subject to change over time.

“Target date” in a fund’s name refers to the approximate year when a plan participant expects to retire and begin withdrawing from his or her account. Target-date funds gradually adjust their asset allocation, lowering risk as a participant nears retirement. Investments in target-date funds are not guaranteed against loss of principal at any time, and account values can be more or less than the original amount invested—including at the time of the fund’s target date. Also, investing in target-date funds does not guarantee sufficient income in retirement.


About the Authors

David Hutchins is a Senior Vice President and Head of AB's Multi-Asset Solutions business in EMEA. He is responsible for the development and management of multi-asset portfolios for a range of clients. Hutchins joined the firm in 2008 after spending two years at UBS Investment Bank, where he was responsible for devising and delivering innovative capital markets risk-management solutions for pension schemes. Prior to that, he spent 13 years at Mercer, where he served as a European principal and scheme actuary, providing trustee and corporate advice to a range of UK pension funds and their sponsors. Hutchins holds a BSc in mathematics and a PGCE from the University of Bristol. He has chaired the Investment Management Association's Defined Contribution Committee and formerly chaired the defined contribution industry working group for the UK government's "defined ambition" project. Hutchins is a Fellow of the Institute and Faculty of Actuaries. Location: London

Elena Wang is a Vice President and Portfolio Manager on the Multi-Asset Solutions team. She joined AB in 2016 as part of the Defined Contribution Research and Investment team. Wang was previously an investment analyst at AIG Asset Management, where she worked directly with the CIO’s office on managing various multi-asset portfolios. Prior to that, Wang was a quantitative analyst at Chatham Financial. She holds a BS in applied mathematics from the University of Toronto and an MS in computational finance from the Tepper School of Business at Carnegie Mellon University. Location: New York

Christopher Nikolich joined AB in 1994 and is the Head of Glide Path Strategies (US) in the Multi-Asset Solutions business, leading research efforts relating to effective target-date and lifetime income fund construction. He is an author of defined contribution–related research, such as Designing the Future of Target-Date Funds: A New Blueprint for Improving Retirement Outcomes and Leveling the Retirement Income Playing Field: A Comprehensive Framework for Evaluating Diverse Lifetime Income Solutions. In addition, Nikolich has authored thought leadership focused on a variety of topics, such as plan design, asset allocation and inflation. He works closely with clients in the structuring of their customized target-date and lifetime income funds. From 2002 to 2008, Nikolich worked in both New York and London as a senior portfolio manager on the Blend Strategies team, collaborating with clients on the creation and implementation of multi-asset class solutions. From 1996 to 2002, he was a portfolio manager in the Index Strategies Group, where he managed risk-controlled equity services. Nikolich holds a BA in finance from Rider University, an MBA in finance from New York University. He is a member of the Board of Trustees of Rider University, the Vice Chair of Rider University’s Investment Subcommittee and is a former member of the Executive Committee of the Defined Contribution Institutional Investment Association (DCIIA). Location: New York