“As part of an ongoing focus on the growth and evolution of the private markets, the Investor Advocate will explore some of the issues surrounding the inclusion of alternative investments, such as private equity and private credit, in retirement savings plans and their implications for retail investors,” read the report.

“For instance, if more plan sponsors offer plan participants exposure to private market investments through target date funds or managed accounts under defined contribution plans, there may be risks, as well as benefits, for retirement savers that include alternative investments as a component of their retirement accounts.”

“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.”

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.

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

“As detailed in this report, our office continues to research and listen to all investors’ concerns and act as a constructive liaison between those investors and the Commission,” said Cristina Martin Firvida, the SEC’s Investor Advocate.

“In our prior reports, we have noted that the private markets have become an important avenue for investors seeking greater access to investment opportunities and an expanded menu of investment products for portfolio diversification,” the report states. “At the same time, we have also expressed concerns about the heightened risks of investing in the private markets, such as reduced, incomplete, or unreliable disclosure, limited liquidity, and greater risk of fraud and/or investment loss.”

The Investor Advocate will also consider for plan sponsors “the often-complex issues that arise under the Employee Retirement Income Security Act of 1974, such as fiduciary duties, when defined contribution plans offer these investment products.”