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In April, Larry Fink, CEO of BlackRock, the world’s largest asset management firm, argued that 401(k) plans should invest more in private assets, in his annual letter to investors. “Private assets like real estate and infrastructure can lift returns and protect investors during market downturns,” he said.
Now, more retirement plan participants will soon be able to see private investments that were previously limited to institutional investors and ultra-wealth investors in their portfolios. In a move aimed at expanding investment opportunities for participants in its defined contribution plans, Empower, the nation’s second largest 401(k) plan provider that works on behalf of 19 million Americans, just launched a new program that will pave the way for private markets investments to be included within DC plans.
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Empower, which manages $1.8 trillion across 401(k) and other retirement accounts for 19 million Americans, has aligned with established private markets managers and custodians, including Apollo, Franklin Templeton, Goldman Sachs, Neuberger Berman, PIMCO, Partners Group and Sagard, to offer these private investments through collective investment trusts (CITs) later this year. So far, five employers have signed on to offer private investments in their 401(k) plans when they become available in the third quarter.
Historically, private markets have shown the potential to be a high-performing asset class but remain largely inaccessible for most retirement plan participants. The investments offered through Empower will be implemented through CITs, which provide limited exposure to diversified pools of private equity, private credit and private real estate, a structure that is designed to provide liquidity protection and reduced fee exposure.
Participants can only access these private investments through managed account services on Empower’s platform. A managed account adviser will ensure that allocations are aligned with an individual’s risk tolerance, time horizon and financial objectives, typically a range from 5% to 20%, depending on participant’s age.
This “profound move” is designed to provide individuals with access to a broader range of investment options, enabling them to further diversify their portfolios and potentially maximize their retirement savings, said Empower President and CEO Edmund F. Murphy III.
“Like any investment, we believe in the importance of advice and risk mitigation for every investor,” said Murphy. “These new opportunities offered under an advice model deliver the guardrails necessary to help an entirely new investor class access private investing.”
“By offering private market assets through defined contribution plans, we’re providing Americans saving for retirement the opportunity to access to some of the most dynamic and growth-oriented investments available …,” said Franklin Templeton CEO Jenny Johnson. “We’re excited to be at the forefront of this transformative change in retirement planning.”
“We work with 19 million Americans investing for retirement through the workplace retirement system who should have the opportunity to make investments that are outside of public markets,” said Murphy. “This move is designed to provide more robust retirement options for those who want to take a new approach to their retirement savings.”
Related: BlackRock CEO calls for more private assets in 401(k) plans, in letter to investors
Retirement plan participants can only access private market investments through Empower if their employers allow these investments to be made available.
In 2020, the Labor Department during the first Trump administration issued guidance confirming that 401(k) plans can offer private equity in a diversified portfolio, such as a target-date fund. However, the Biden administration’s DOL noted that it “did not endorse or recommend such investments.” It’s expected that the DOL will issue further guidance for employers that are interested in electing to adopt private investments in their 401(k) plans.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
