Melanie Waddell at ThinkAdvisor polled advisers on the Labor Department's plan to open 401(k) plans to alternative investments like private equity and private credit. Some saw a role for alts inside target-date funds. Others saw drawbacks. Her question to me was whether advisers as a group are on board.
Not even close. There is a genuine split. Advisers who work with high-net-worth clients have seen alts perform well in certain cycles and have the resources to underwrite them. Advisers who primarily serve middle-income workers are more skeptical, for good reason. The average participant cannot evaluate a private credit fund's fee stack or liquidity terms, and the plan sponsor's fiduciary duty does not change because Washington issued guidance.
The biggest risk is that alts get added to plan menus as a headline and end up in the accounts of people who never asked for them, through default funds and target-date allocations, with fees and lockups they will not read about until they need the money. Liquidity is the part that gets underweighted every time. A 401(k) participant who changes jobs or needs a hardship withdrawal is not well served by an asset that takes a quarter to sell.
For sophisticated savers with long horizons, a small sleeve may be defensible. For the average worker, the challenge is not a lack of access to alternatives. It is a lack of contributions, and no menu change fixes that.
Read the full article at ThinkAdvisor →
