More than one-third (36%) of investors participating in a 401(k), 403(b) or 457 workplace retirement savings plan would invest in alternative investments – private equity and private debt investments – if their plan provided access to these assets, according to the Schroders 2024 U.S. Retirement Survey.
While 80% of these participants say access to private investments would lead them to increase the amount they are contributing to the plan, few plan sponsors currently offer that option.
<!–>
“Companies are filled with people who are on different career paths and have varying capacities to save,” said Deb Boyden, Head of US Defined Contribution, Schroders. “The financial literacy of employees also spans a very wide range, which is why personalization in participant education is so important. The more the tailored content and education is to the individual’s knowledge base, the more likely it will be effective in helping participants reach their goals.”
–> <!–>
Among those who expressed interest in private investments, most would take a measured approach with their allocations to private assets:
- 52% would allocate less than 10% of workplace retirement assets
- 34% would allocate between 10-15% of workplace retirement assets
- 8% would allocate more than 15% of workplace retirement assets
- 6% are unsure how much they would allocate
This survey highlights growing interest among plan participants in private equity and debt investments, as well as the challenges posed by a knowledge gap around these alternative investments.
–>
“Alternative investments such as private equity and private debt have long served as important portfolio diversifiers in defined benefit plans,” said Boyden. “Given the evolution of the asset class in recent years, it’s a matter of when, not if, these investments will become more common in defined contribution plans.”
<!–>
Despite the growing prominence of alternative investments in recent years, half of all plan participants (51%) surveyed don’t understand the benefits of adding alternatives to their retirement portfolio, and 64% say alternative investments sound risky.
–> <!–>
“Alternatives such as private equity and private debt offer diversification benefits that can help reduce portfolio volatility,” said Boyden. “Private assets can also provide potential for enhanced returns, particularly in today’s challenging market environment.
–> <!–>
“Recent product innovations have made it easier for plan participants to access alternatives within retirement portfolios through multi-asset solutions that incorporate private assets. These professionally managed solutions not only deliver diversification but also simplify the adoption of private assets, making them more accessible to a wider range of participants.”
–> <!–>
This knowledge gap among plan participants isn’t limited to alternatives, as 52% of participants report they don’t know how to manage risk in their retirement portfolio and 59% wish they received more guidance from their employer on how to invest their workplace retirement plan assets.
–> <!–>
“Before private assets can reach their full potential, significant inroads in participant education must be made,” added Boyden. “Education is vital. Thanks to advancements in technology, plan sponsors can provide employees with personalized content and tools to help them better understand alternatives and their role in a portfolio.
–> <!–>
“According to our survey, 59% of plan participants wish they received more guidance from their employer on how to invest their workplace retirement plan assets. Clearly, the demand for education remains strong despite the strides that have already been made on this front.”
–>