Workplace Retirement Plan Participants Want Private Assets. Should They?

Tom Sawyer famously convinced his friends that whitewashing a fence was actually really fun. A similar FOMO scenario may be playing out in workplace retirement plans.

Nearly half of 401(k), 403(b) or 457 participants said they would invest in private equity and private debt if their plans provided access, up from 36% in 2024, according to a new Schroders report. Additionally, 77% of plan participants said they would even increase contributions to their plans if private assets were available. With asset managers championing alternatives and President Donald Trump signing an executive order expanding access to them, the hype is real. But is it wise? Do participants even understand how these investments work?

“Too many investors believe that investment success increases with more complicated strategies,” said Randy Bruns, founder of Model Wealth. ”And Wall Street doesn’t help with that narrative, as financial institutions are incentivized to sell high-fee, exotic solutions.”

I Want It, I Want It

Private assets have traditionally been limited to accredited investors with net worths above $1 million. Now, with Washington’s encouragement, retirement savers are eager to access them, often without realizing private assets’ greater risk potential, lower liquidity and higher costs, said Joe Weber, founder of Integrated Financial Solutions. “[Participants] just hear a lot about them in the media and think, ‘How come I’m not invested in that?’” he told Advisor Upside.

Just 12% of plan participants reported being very knowledgeable about private assets, Schroders found. Yet enthusiasm persists:

• More than a third said they would allocate 10-15% of their workplace retirement plans to private assets.
• Most agreed they sound risky, but roughly three-fourths said private assets will help diversify their portfolios and provide greater investment return.

While any allocations would likely be handled by portfolio managers, and not participants, “significant inroads in participant education must be made to ensure all investors are familiar with the role of privates in a diversified portfolio,” said Deb Boyden, Schroders head of US defined contribution.

Private Access. Despite rising interest, only 30% of participants expect private assets to appear in their workplace retirement plans within five years. That may not be the worst outcome, Bruns suggested. “You definitely won’t miss retirement because you never owned private equity,” he told Advisor Upside. “But you could experience major setbacks if you choose it and don’t know what you’re doing.”