How Will Private Markets Exposure Impact Fiduciaries?

Private investments have long been permitted in defined contribution plans, but a recent regulatory push has brought renewed attention to this rarely used asset class.

Despite the recent push, fiduciaries—especially discretionary investment managers—face new layers of complexity in evaluating and monitoring these assets, according to a paper released by Pallas Capital Advisors LLC, written by Kevin Crain, a strategic adviser for retirement services at Pallas and the executive director of the Institutional Retirement Income Council, and Greg Boyle, the chief growth officer at Pallas and one of its founders.

The fiduciary-focused analysis argued that the conversation about alternative investments in DC plans has shifted from whether they can be used in 401(k) plans to how they can be implemented prudently. The Employee Retirement Income Security Act still places the burden on fiduciaries to demonstrate disciplined processes, operational readiness and participant protections, as private assets are increasingly embedded in multi-asset investment options such as target-date funds.

For years, private investments were widely viewed as incompatible with participant-directed retirement plans because of valuation delays, liquidity constraints and trading expectations, even though they were eligible investments. That stance softened after President Donald Trump issued an executive order in August 2025 asking regulators to clarify that private market exposure may be appropriate when used as part of diversified, professionally managed structures rather than as standalone investment options. 

In practice, that means private equity, private credit and similar assets are being engineered into target-date funds, balanced funds and managed accounts—vehicles that are expected to manage liquidity through public market “sleeves,” integrate periodic valuations and maintain professional oversight of allocation decisions.

The result is a shift in fiduciary responsibility, the paper argued. The legal standard of prudence has not changed, but the scope of analysis has broadened to include liquidity design, valuation governance, fee transparency and operational coordination with recordkeepers.

An Evolution for Fiduciaries

Crain describes the ongoing change as part of a progression in fiduciary practice, rather than a dramatic overhaul. He adds that 3(38) investment managers may feel the pressure most acutely because they make investment decisions on behalf of plan sponsors and can become the focal point for scrutiny if decisions are challenged.

“This is not moving the earth,” Crain says. “I see it as an evolution in the world of the 3(38) fiduciary. They had better be expert and well educated in the [investment] they’re advising on, on a discretionary basis, since a lot of the risk, litigation and pressure is first going to go to them.”

Part of that added risk, Crain says, is that many plan sponsors may feel more comfortable relying on those discretionary fiduciaries when evaluating complex alternative investments.

“If someone else is making that fully discretionary decision, [a plan sponsor] may feel a little bit of protection,” he says.

The Department of Labor filed its proposed rule on incorporating private assets into DC plans to the White House for review in January, in accordance with the timetable laid out in last year’s executive order. The proposed rule has not yet been published for public comment. The rule will likely specify steps fiduciaries should take to ensure they are using a prudent process when adding private investments to their plan’s investment lineups.

Lisa Gomez, former assistant secretary of labor for employee benefits security and current president of LMG Collaborative Consulting Solutions, advises that fiduciaries should base all decisions on whether their actions are prudent and hopes the same for the pending DOL rule.

“Whatever the proposed regulation the DOL comes out with, I hope it tells fiduciaries that at its core, their responsibilities remain the same,” she says.

Similarly, Crain says the path forward for fiduciaries begins with mastering the rules, modeling risk and ensuring operational stability for participants.

“Make sure that your target date, or wherever you add the private investments, will continue to operate as smoothly and effectively as it’s been,” he says.