Private assets are gaining traction in many portfolios, as investors seek new frontiers given a more challenging market landscape. Returns of traditional asset classes in the years ahead are likely to be lower on an inflation-adjusted basis, and public markets offer fewer options for diversification today, at a time when managing risk is becoming increasingly important.
We think private assets make sense for defined contribution (DC) savers, too, given their long-term investing focus. Some plan sponsors have added private exposure to their plans and many more are considering it, but the question of “how” remains. There’s more than one way to give participants access to the return and diversification potential beyond public markets, each with its own considerations.
Professionally Managed Default Solutions
Private asset exposure can be included in a professionally managed retirement solution, with investment managers designing and managing a diversified allocation for participants. This includes adjusting and rebalancing exposures over time as market conditions change, relieving participants of the responsibility of managing the mix themselves.
The solution can be integrated in the plan’s default option, often a diversified target-date fund, or via a managed account that can be offered as either an opt-in choice or default. In either implementation, the plan sponsor, investment manager or both—from design and implementation to ongoing monitoring and management. This alleviates the burden on participants and, if used within the default option, has the potential to reach the most participants.
Diversified Core Menu Option with Private Assets
Sponsors might decide to offer an option with a diversified mix of private and public assets on the plan’s core investment menu. There are several potential mixes, including a core-plus fixed-income strategy with a blend of public bonds and private credit. Another iteration might be a balanced fund that pairs public equities and fixed income, some or all of which may be inflation-sensitive, and includes a private-asset investment sleeve.
Offering a distinct option on the plan investment menu gives participants a straightforward way to add private-asset exposure as they go about building their portfolios. Participants themselves are responsible for determining whether or not to opt in, what percentage of their overall assets to allocate to strategies that include private assets, and how to manage exposure to allocations that include private assets and other components to keep the portfolio balanced over time.
Stand-Alone Private Asset Core Menu Option
A stand-alone private asset fund option on the core menu that invests mainly in private assets provides more direct and pure access to the opportunity set. However, most plan sponsors haven’t taken this path, given several concerns. For one thing, participants may be reluctant to opt in if they’re unfamiliar with how to deploy it appropriately, and some of those who do opt in may not fully grasp the risks.
Also, there’s a lag in private asset valuations, so the timing of buying and selling by some participants may negatively impact other participants once valuations catch up. This could raise questions of fairness if some individuals benefit at the expense of others—intentionally or not—issues that could be avoided with other options. Liquidity stress might also pose a problem for the private fund if many participants redeem within the same time frame.
US Department of Labor (DOL) 2020 information letter discusses private equity as part of a professionally managed asset-allocation fund in a DC plan, leading many sponsors to interpret that approach as a safer governance path than a stand-alone fund. The current administration is making progress on boosting access to alternatives.
Following an August 2025 executive order, the DOL proposal to the Office of Management and Budget identified fiduciary duties for incorporating alternative investments; this could bring more regulatory clarity in the near future. Concerns about participants’ unfamiliarity with private assets could be addressed by capping allocations to stand-alone funds or making them exclusively for use in professionally managed portfolios, such as target-date funds and managed-account providers.
Strategic Considerations When Evaluating “Fit”
For plans considering private assets, plan sponsors’ and employees’ financial sophistication should be a factor in determining which path to follow. For example, exposure through an off-the-shelf target-date fund or diversified core menu option with private assets may be better suited for less sophisticated plans that want basic, easy access for participants. More sophisticated investors looking to maximize the value of private exposure might be better served via a custom target-date fund that can be tailored to plan demographics or a managed account.
Regardless of the type of solution chosen, the implementation can vary quite a bit from provider to provider—differences that could be significant enough to affect participants’ outcomes. That’s why it’s vital to gain a clear and thorough understanding of how each solution is built and operated. With that knowledge, and with the plan’s objectives in hand, we think sponsors will be well-equipped to choose the path that’s best-suited to their participants.
“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.
The views expressed herein do not constitute research, investment advice or trade recommendations, do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.
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.
Elena Wang is a Vice President and Portfolio Manager on the Multi-Asset Solutions team.
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