Larry Fink, CEO of BlackRock — the world’s largest asset management firm, with more than $11 trillion in assets under management in 2024 — has called for putting more private assets in 401(k) plans.

“Private assets like real estate and infrastructure can lift returns and protect investors during market downturns,” Fink wrote in a letter he sent to investors in April. “Pension funds have invested in these assets for decades, but 401(k)s haven't. It’s one reason why pensions typically outperform 401(k)s by about 0.5% each year.

“BlackRock estimates that, over 40 years, an extra 0.5% in annual returns results in 14.5% more money in your 401(k). It’s enough to fund nine more years of retirement, helping you stop working on your own terms. Or, put another way, private assets just bought you nine extra years hanging out with your grandkids … If private assets perform so well, why aren't they in your 401(k)?”

“Private investment offerings and alternatives have been overlooked in DC plans for some time,” said Jeremy Stempien, Portfolio Manager and Strategist for PGIM DC Solutions. “The importance of these investments is as great as ever given the size of the DC market, the increased focus on investors nearing or in-retirement, and some of the key risks such as inflation that are more present than we’ve seen in decades.”

Private equity firms Blackstone, KKR, and Apollo have established partnerships with asset managers Vanguard and State Street.

A few weeks ago, Empower — the nation’s second-largest 401(k) plan provider, which manages $1.8 trillion in retirement accounts for 19 million Americans — launched a program that will pave the way for private markets investments to flow into DC plans.

Empower has joined 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. 

Historically, private markets have shown the potential to be a high-performing asset class but remain largely inaccessible for most retirement plan participants.

Empower's CITs will give participants limited exposure to diversified pools of private equity, private credit and private real estate. The structure is designed to provide liquidity protection and reduced fee exposure.

Related: BlackRock CEO calls for more private assets in 401(k) plans, in letter to investors

Sure, private investments carry extra risk, which is why participants who have access to Empower’s new investments can only get them through managed account advisers, to ensure that allocations are aligned with an individual’s risk tolerance, time horizon and financial objectives, depending on participant’s age.

But private markets “are the next frontier, full of boundless opportunities for Americans who want to save for a home, their children’s education, and their retirement," Investment Company Institute President and CEO Eric J. Pan said at the Leadership Summit in Washington earlier this month. "Our goal, and our job, is to help them seize those opportunities, so they can achieve their American Dream.”

“Critics say that retail investors will be exposed to greater risk in private markets, and we agree that any such risks should be mitigated,” Pan said. “The fact is that regulated funds already offer the best protection. They’re governed by strict legal requirements, including robust oversight from an independent board, an adviser who is subject to a fiduciary duty, diversification requirements, limitations on leverage and transactions with affiliates, and shareholder disclosure requirements, among many other commonsense guardrails. By using regulated funds to invest in private markets, retail investors will get the best of both worlds — and the protections they deserve.”

An ICI spokesperson said the institution is exploring ways to address the Employee Retirement Income Security Act fiduciary liability concerns that in the past inhibited plan sponsors from selecting target-date funds and other investment options that use private markets strategies.

More than 156 million Americans have ERISA plans, so allowing target-date funds to add components with private credit, private equity, and other private markets strategies is a great way to help these investors diversify their portfolios with all the protections that retirement vehicles offer, according to ICI.

How do benefits firms see the new efforts?

“There is potential for wider adoption throughout the entire private investment category, especially as sleeves within multi-asset solutions, like target-date funds, that are being managed by a professional asset manager,” said Stempien. “In our PGIM 2025 DC Plan Sponsor Landscape Survey, plan sponsors indicated their preference for these private asset classes to be included within target date funds as well.”

“We observe that some DC plan sponsors and their consultants and advisors agree with the investment case for including private asset exposure, specifically within a multi‑asset investment product, like a target date fund; however, questions regarding regulatory clarity and fiduciary responsibility continue to give decision‑makers pause,” said Jessica Sclafani, global retirement strategist at T. Rowe Price.

“For private assets to become more prevalent in DC plan investments, we believe there will need to be greater recognition that the fee environment for DC plans differs from that for qualified individual investors,” said Sclafani. “DC plan sponsors are especially fee sensitive and seek compelling value‑for‑cost relationships in the products offered to participants. We believe that any inclusion of private assets, especially within multi‑asset products, needs to preserve the balance between cost and value.

“Before introducing a new allocation—public or private—in a multi‑asset portfolio, the investment opportunity needs to be evaluated both individually and within the context of the broader portfolio. In other words, any private asset allocation must earn its place in the portfolio by offering unique net‑of‑fee investment benefits.”

Private investments can earn more than public company stock, and they do provide a hedge against inflation, according to a Mercer paper on the subject, Looking to the Future: The evolution of private investments in U.S. defined contribution plans.

However, private investments are not valued daily or traded. That can create challenges for participants needing to access their funds quickly, according to the team of retirement plan experts who wrote the report.

So, how do 401(k) plan sponsors become more familiar with the private investment landscape?

“As a first step, we suggest that DC plan sponsors consider educating themselves on what private investments entail and gain an understanding of how to solve for various complexities,” the Mercer team says.

In conclusion, “increasing the opportunity set of investments for DC participants is likely to improve long-term risk-adjusted returns, which translates into more retirement income for Americans," said Stempien.