Private Assets Are Coming to Target-Date Funds. Will Investors Bite? 

Nobody wants to be late to the party. 

A final rule from the Department of Labor that could help clarify retirement plan fiduciaries’ obligations when offering alternative investments is being reviewed at the Office of Management and Budget. It’s the last step before the rule goes into practice, but asset managers aren’t waiting around to see it before launching products with meaningful allocations to alternatives.

This week, Manulife John Hancock Retirement threw its hat in the ring with a proposed suite of target-date collective investment trusts that will combine public markets and stable value with private equity, private credit, private infrastructure and private real estate. With up to 20% allocations to alts, the Lifetime Blend+ portfolios have “differentiated sources of growth, income, diversification and inflation resilience throughout the accumulation and decumulation phases,” the firm said. 

“[Retirement savers] need investment solutions built not only to reach retirement, but to help sustain them through it,” said Wayne Park, CEO, Manulife John Hancock Retirement, in a statement. 

Join the Party 

The forthcoming series stands out for its allocation to private assets, but the firm is far from the only one developing target-date strategies with alternatives:

• State Street Investment Management worked with Apollo Global Management on a number of target-date strategies launched last year with up to a 10% private market allocation. 
• Franklin Templeton offers target-date strategies with private market allocations of 2% to 8%. 
• Others active in the space include BlackRock, T. Rowe Price, Principal Financial Group, Voya, PGIM and WTW. 

“All the big providers are at least thinking about how to create the option for plan sponsors that are interested in private markets,” said Jason Kephart, senior principal of multiasset strategy ratings for Morningstar. “Vanguard is the only big target-date provider that hasn’t announced something related to private markets yet.”

So far, all the options are collective investment trusts, which aren’t subject to the Investment Company Act of 1940. That law prohibits mutual funds and open-end exchange-traded funds from investing more than 15% of their net assets in illiquid investments.

“So, we’re probably going to see private markets exposure vary between 10% and 20% — changing depending on how far the investor is from the target date,” Kephart said. 

What About Demand? Kephart doubts there will be much demand for the strategies before the DOL alts rule is finalized. “No one wants to make a change to add private markets and then realize they missed a step in the fiduciary process the final rule lays out,” he said.