Plan Sponsors See Private Markets Opportunity
Among those surveyed by HarbourVest, 94% said they are confident private market investments could improve long-term participant outcomes.
Amongst 200 plan sponsors surveyed by HarbourVest Partners LLC, 94% reported they are confident private market investments will improve long-term participant outcomes in defined contribution plans, while 86% said they believe diversification is a key guardrail for managing risk.
Most respondents also said their organization’s biggest need related to private market investments is additional education or guidance in understanding the regulatory environment and fiduciary duties.
Diversification and Private Markets
Plan advisers recently showed similar interest toward private markets, with the investments gaining traction following the Department of Labor’s August reversal of the department’s previous stance—under the previous administration—on the suitability of alternative investments.
According to HarbourVest’s survey, conducted by Censuswide, 92% of sponsors said they feel their organization’s in-house expertise is prepared to evaluate, select and manage private market investments within DC plans. In addition to confidence in private market allocations, sponsors said these allocations must be diversified to mitigate risk, with 45% strongly agreeing and 41% agreeing somewhat.
The survey also asked sponsors, “When you think of a fund/investment option, how many holdings within that fund/option would you consider to be a diversified investment?” Fifty one percent of respondents said 30 to 50 holdings, and 30% said 51 to 99 holdings.
“Many investors don’t realize that many private markets funds invest in a narrow part of the market,” said John Toomey, HarbourVest Partners’ CEO, in a statement. “Diversification across different managers, investment styles, company size and other key dimensions is a common sense, demonstrated way to reduce risk in public markets investing and private markets investing is no different.”
Education Focused
While sponsors said they feel their organization’s expertise is prepared for private market allocations, they also highlighted the need for additional education, potentially teeing up plan advisers for critical conversations in the coming months.
When plan sponsors were asked where they would most need education or guidance, the two areas identified most were: understanding the regulatory environment and fiduciary duties (40%) and portfolio construction approaches (35%).
When asked about their greatest concerns regarding the inclusion of private markets within DC plans, 38% of respondents selected cost and fee transparency as their top concern, followed by 34% identifying participant communication and understanding.
U.K.-based research consultancy Censuswide conducted the survey on behalf of HarbourVest Partners, polling 200 defined contribution plan sponsors. Of those, 72 had at least 250 employees, and 93 had from 50 through 249 employees. The data were collected from October 26 through November 4.