Private Market Returns in DC Plans Depend on the Plan’s Design, per CFA Institute

New research from the CFA Institute suggests that while private market investments may improve retirement outcomes in defined contribution plans, benefits vary significantly by asset class and plan design, raising questions about whether growing industry interest in private assets will ultimately translate into better participant outcomes.

The findings come as consultants increasingly anticipate private assets becoming part of DC investment lineups. T. Rowe Price’s Sixth Annual Defined Contribution Consultant Study, published last week, found that expectations for the adoption of private credit and private equity increased significantly between 2024 and 2026, with target-date funds viewed as the most likely access point for participants.

On a 1 to 4 scale, with 4 representing the greatest likelihood of being incorporated into DC plans, private credit received an average rating of 2.6; private equity increased to 2.2 this year, from 1.6 in 2024, T. Rowe Price found.

CFA Institute researchers based their analysis on a target-date fund framework, modeling portfolios with varying allocations to private equity, private debt, infrastructure, real estate and venture capital alongside traditional public equities and fixed income.

The study found that target-date funds with private equity allocations generally produced higher average accumulation values than did a traditional public market portfolio, while venture capital also showed some potential benefits. However, researchers noted that a 10% private market allocation did not materially alter outcomes much over of a participant’s working career.

CFA researchers cautioned that expanding access is only part of the equation. “Private market access is not, by itself, a retirement strategy,” said Raymond Pang, senior researcher at the CFA Institute and co-author of the research, in a statement. “Our modeling found no single formula: Results changed with the asset class, its interaction with public assets and the fund’s glide path, while the accumulation period could have a larger effect than the private market allocation [does] itself. This is fundamentally a portfolio-construction question, not simply an access question.”

The institute’s findings suggest that private markets should be evaluated as part of a broader portfolio-construction exercise rather than as a standalone solution to retirement saving challenges.

Per a statement from Olivier Fines, head of advocacy and policy research at the CFA Institute, “The key question is whether 401(k) plan fiduciaries can prudently determine that private investments improve outcomes net of fees while maintaining adequate liquidity, reliable valuation practices and clear participant understanding.”

That question remains central as private market adoption gains momentum. Although private assets have long been used in defined benefit plans, CFA Institute researchers noted, defined contribution plans present additional considerations because participants ultimately bear investment risk and may require greater liquidity and transparency.

Liquidity management, valuation methodologies, pricing frequency, fee levels and fiduciary oversight were highlighted in the research as the primary factors sponsors and investment committees should evaluate when considering private market allocations.

“Opening access is not the same as improving retirement outcomes,” Fines said. “Our analysis shows that the answer depends on the asset class and the design of the plan.”