Do Private Markets Present a Lucrative Opportunity ‘Fraught With Peril’?

Ever since Empower Retirement LLC announced an initiative to offer private market investments within defined contribution 401(k) managed accounts, academics and others have been questioning the value and risks of such a move; just last week, Senator Elizabeth Warren, D-Massachusetts, publicly asked Empower for more details.

Private investments raise complex questions for plan fiduciaries, particularly concerning due diligence, participant suitability, cost, transparency and legal risk.

Empower, the second-largest retirement services provider in the U.S., announced in May that it plans to offer limited exposure to diversified pools of private equity, private credit and private real estate via collective investment trusts, which it termed structures designed to provide liquidity protection and reduced fee exposure.

Plan participants will only be able to access the investments through Empower if their employers make them available and only via managed accounts “to match the investment against an individual’s risk tolerance and long-term financial goals, among other factors,” Empower stated in its announcement.

Historically, defined benefit plans and other institutional investment pools have invested in private markets because the teams managing them have the resources and expertise to understand private market complexity and illiquidity. Empower’s announcement appears to be the first of its type for large plans.

For smaller plans, limited data exist about exactly how many already offer private investments.

Together with the National Association of Plan Advisors’ Advisor Research Institute, Meketa Capital released a study in May 2025 that showed that while only 5% of respondents currently have any DC plans that include access to private markets, 22% plan to include these investments in the future.

Michael Bell, CEO of Meketa Capital and Primark Capital, says he has observed for some time that an increasing number of smaller DC plans are offering access to private investments. It became possible with the loosening of Department of Labor rules during President Donald Trump’s first term.

According to Jerry Schlichter, the founding and managing partner of law firm Schlichter Bogard—which represents plan participants—private equity firms have been lobbying intensely in the past two to three years to gain access to plan participants’ savings.

Yet the complexity and risks associated with private assets—illiquidity, opaque valuations, higher fees and limited regulatory oversight—pose new challenges for plan advisers serving as fiduciaries, he says.

More Work and Risk for Plan Advisers/Fiduciaries

Schlichter calls the selection of private equity as a 401(k) investment option “fraught with peril,” citing the opaqueness of alternative investments.

“The fiduciary responsibility of plan advisers remains the same, but the work involved to carry out the fiduciary responsibility is made much more difficult and complex when you’re talking about private equity or private credit,” Schlichter says. “The job is now more difficult and involves much more risk if they’re going to recommend private investments. Plan advisers should be giving serious thought to their due diligence process.”

Considering the duty of plan advisers to work on behalf of the sponsor, but also on behalf of the retiree, plan advisers who want to bring in private investments need to ask more questions of the investment managers in the underlying investments, Schlichter says, adding that if those investments are private, investment managers may resist answering plan advisers’ questions.

If an investment manager does not provide the requested information, the plan adviser should not invest, Schlichter says.

“If a plan adviser can get the necessary information to make the same kind of recommendation that they would make for any investment—such as performance history, underlying portfolio investments and fee information—and they thoroughly investigate it and come up with the strong opinion that the investment is likely to beat the market after fees, that may be a prudent investment,” Schlichter says. “Remember that these days, any participant in any plan in America can get a market return from an index fund with minimal fees.”

Asked about the effect of private investments being available through a CIT on plan advisers, Schlichter responded unequivocally that the vehicle does not alter the need for a robust fiduciary process.

“The collective investment trust wrapper doesn’t change the underlying need for thorough investigation,” Schlichter says. “The adviser has to do the duty that he or she has, regardless of the structure of the particular private investment option.”

Why Private Investments?

Proponents of including private investments in 401(k) plans argue that doing so addresses a significant shift in the capital markets. They point to data showing that the number of publicly traded companies in the U.S. has fallen by 40% over the past two decades. Additionally, 87% of U.S. companies with revenues exceeding $100 million remain private. From this perspective, retirement plan participants are missing access to a large and potentially lucrative segment of the economy.

However, critics question the strength of this rationale.

Jean-Pierre Aubry, associate director of retirement plans and finance at the Center for Retirement Research at Boston College, challenges the idea that a shrinking public market justifies opening retirement plans to private assets.

“I just don’t think the shrinking of the public markets is significant enough to say that the private markets are the only way to get access,” Aubry says. “For almost anything you want to have access to, you can still get decent exposure through public markets.”

He says that when comparing broad public and private asset classes over the long term, the returns are often similar—except that private assets typically carry higher fees and less transparency. Aubry says he believes private investments are not appropriate for the average 401(k) participant due to complexity, fees, illiquidity and lack of transparency.

He questions who is pushing to add these options to plans, noting that he doubts it is plan participants; Aubry says it appears that private equity companies are in search of more investable capital, and this is an immense source of potentially passive capital to fund their investments.

“I think it’s putting fiduciaries at risk if they’re going to play this game,” Aubry says.

Private Investments Through Managed Accounts

Shawn O’Brien, head of retirement insights at Broadridge, says Broadridge offers a solution tailored for advisers who want to evaluate and select managed accounts that can accommodate private market investments within 401(k) plans.

“I think the managed account is a really sensible chassis through which to offer private market investments to defined contribution plan participants,” O’Brien says. “Professionally managed investment solutions, such as target-date funds and managed accounts, help ensure an appropriate allocation to private market investments. But managed account programs may be able to look at the participant’s financial circumstances beyond just age, such as the participant’s investment objectives, willingness to assume risk and liquidity considerations, when determining how much to allocate to private market investments.”

Through its Managed Account Program Evaluator, Broadridge provides a structured framework that allows fiduciaries to assess various managed account options, based on customizable criteria. The evaluator enables advisers to determine which managed account platforms have the operational flexibility to include private assets.

Advisers using Broadridge’s tool can sort managed account programs by important features, including whether they allow non-core lineup products, permit selection of specific private assets or support white-labeling for firms seeking to brand the solution as their own. From there, the fiduciary can build a sidecar investment lineup of private investments that are only accessible to participants enrolled in the managed account, not the plan’s core investment menu.

The research from NAPA and Meketa also showed that advisers believe target-date funds and managed accounts are the most appropriate vehicles to give participants in-plan access to private market investments, given concerns about fiduciary and liquidity issues.

“Given the aforementioned fiduciary concerns, advisers are reluctant to allow participants to make an allocation to private markets on their own,” the report stated. “Instead, they consider target date funds, managed accounts, and adviser managed accounts (AMA) to be the best option for exposing participants to private markets. It’s important to note, however, while these are the vehicles that, on a relative basis, received the highest interest from advisers, there are still a significant number of advisers who have low or very low interest in using a target date fund or managed account with an allocation to private markets.”

Due Diligence Requirements

Looking forward, making private market investments available to plan participants represents both an opportunity and a challenge for plan fiduciaries.

While the potential for enhanced diversification and returns is possible, so too are the risks of increased complexity, illiquidity and fiduciary exposure. Managed account providers like Empower are adapting by embedding private assets within CITs, limiting allocations and requiring personalized advice. However, the ultimate success of these initiatives will depend on careful due diligence, robust participant education and regulatory clarity.

For plan advisers and plan sponsors, the message is clear: proceed thoughtfully, document every step and prioritize the interests and understanding of plan participants above all. As the retirement industry enters this “new frontier,” the balance between innovation and prudence will be more important than ever.

 “If plan advisers take their fiduciary duty seriously, they must recognize that recommending opaque, illiquid, high-cost private investments requires significantly more diligence and poses far greater risk,” Schlichter says. “Without full transparency and a well-documented belief that the investment is prudent and cost-effective, they haven’t done their job—and they are at litigation risk.”

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