Advisers’ Alts Investments Outpace Plan Sponsor Adoption

U.S. financial advisers are expected to nearly double their holdings of less-than-fully-liquid private market investments over the next five years, even as defined contribution plan sponsors are largely in the exploration stage when it comes to adding alternative investments to 401(k) lineups.

According to “The Cerulli Report: U.S. Private Markets 2026,” advisers have allocated about $2.2 trillion to less-than-fully-liquid private capital, and Cerulli estimated that another $2 trillion will be added in the next five years.

Asking surveyed asset managers about potential drivers of alternative investment growth over the next three years, Cerulli found that 93% cited greater availability, 67% said advisers needed to demonstrate value to clients, and 57% cited demand for income-producing investments.

The research suggested that expanding access will increasingly rely on partnerships between traditional asset managers, private market firms, technology platforms, turnkey asset management providers, trust companies and recordkeepers as distribution grows through model portfolios, multi-asset vehicles and DC plans.

On the product side, Cerulli found interval funds remain the preferred semi-liquid vehicle for distributing private market investments. Seventy-nine percent of asset managers surveyed already offered interval funds, and interval funds’ assets reached approximately $132 billion across 147 funds by year-end 2025.

Sponsor, Participant Expectations

A separate survey of 1,008 401(k) plan sponsors by Escalent’s Cogent Syndicated division found that interest in alternatives was growing, but actual adoption remained limited. The survey, conducted in February and March, found that 44% of plan sponsors were “extremely interested” in learning more about incorporating alternatives into their DC investment lineups, but only 3% currently offered them.

Large plans ($100 million to $500 million in assets) showed greatest interest, with 62% expressing enthusiasm about learning more, compared with 50% of mega plans (at least $500 million in assets). Among sponsors interested in alternatives, Cerulli found that hedge funds, private credit and private equity each attracted interest from 75% of plan sponsor respondents.

The survey also revealed apparent contradictions in how sponsors view alternative investments. Sponsors interested in adding them gave lower fees as their most-cited motivation (35%). Yet among sponsors not interested in alternatives, high fees and expenses were the most-cited barrier (33%).

Sponsors of small plans ($5 million to $20 million in assets) were most motivated by the potential for lower fees (37%), while high fees were the most-cited barrier for small (33%) and midsize plans (37%).

Sonia Davis, Ecalent’s senior product director and lead author of the Retirement Planscape study, says the disconnect reflects the perceptions among two different groups of sponsors, rather than actual experience with alternative investments.

“It’s the perception. That’s what’s sparking their interest,” she says, noting that many respondents were still evaluating the concept, rather than implementing it.

Among those who were interested, midsize plan sponsors’ most-cited reason in wanting to offer alternative assets in their lineups was inflation hedges (40%), while large-plan sponsors wanted diversification and downside-risk management (44%), and mega-plan sponsors wanted liquidity (36%) and higher returns (29%).

More than one-quarter of uninterested sponsors (28%) thought alternatives were too risky. Among uninterested large-plan sponsors, 49% said there was weak participant demand, and 34% found it difficult to fit alternatives into a traditional 401(k) lineup.

A recently published AllianceBerstein survey of DC plan participants conducted in May found that while most respondents had some level of familiarity with private market investments (56%) and wanted them incorporated in their long-term retirement savings portfolio (71%), 43% of respondents shared concerns about risks and costs.

Fewer than half of responding participants (44%) said private market investments would have little or moderate impact on long-term retirement income, compared with 35% saying they would have a fair amount or great impact, 5% anticipating no impact, and 16% unsure.

“There’s enthusiasm, but not a lot of understanding,” Davis says. “It’s up to the alternative investment managers really partnering with DC advisers and DC advisers educating plan sponsors and then carrying forth that messaging in a really smart way.”