How to best add private investments to a DC plan
Plan sponsors need a framework—a clearly marked roadmap—to evaluate the relevant risks and tradeoffs of adding private investments. They can expand the opportunity set, increase risk-adjusted returns, and bolster portfolio diversification. But they also present real challenges in liquidity management, transparency and fees.
Consider target date funds as a possible first step
Many plan sponsors will first consider incorporating a sleeve of private investments within a professionally managed target date fund. The resulting mix of public and private asset classes can allow for optimal portfolio allocation over time and facilitate periodic rebalancing. Most of all: they can help deliver better retirement outcomes.
Private markets and active investing go hand in hand
Adding private investments requires plan sponsors to make a series of “active“ decisions. That means establishing a glide path and an unbiased asset allocation framework to properly scale and diversify the private market exposure. It also requires skilled bottom-up manager selection and meeting liquidity needs in dynamic markets. Choosing an experienced partner can make all the difference.