Private assets are increasingly being considered for use within defined contribution plans because they may broaden diversification and improve long-term participant outcomes. Their established use in defined benefit plans, endowments, and foundations demonstrates their potential role in diversified institutional portfolios. In participant-directed defined contribution plans, however, private assets require heightened fiduciary attention due to their higher and less transparent fees, limited liquidity, valuation complexity, newer product structures, and developing regulatory guidance.
Private assets will generally be more appropriate as a measured allocation within a professionally managed solution, such as a target date fund or managed account, than as a stand-alone menu option. A managed structure allows liquidity, valuation, cash flows, risk, and fees to be addressed at the portfolio level. Fiduciaries should use a disciplined, well-documented evaluation process both for the addition and ongoing monitoring of alternative investments.
What Are Private Assets?
Private assets are investments in companies, loans, or properties that are not publicly traded. Common categories include:
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Private credit: Privately negotiated loans and other nonpublic credit instruments.
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Private equity: Ownership interests in privately held companies.
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Private real estate: Direct or privately structured investments in physical properties.
The Investment Case
The potential case for private assets rests primarily on return enhancement and diversification. Private market investments may expand the opportunity set and provide exposure to companies, credit opportunities, and real estate investments not fully represented in public markets. For example, Wealthspire’s capital market assumptions estimate a potential 3% return premium for private equity relative to public equity, so their inclusion in an asset allocation could be meaningful for participants. Additionally, BlackRock believes inclusion of private market assets in a target date fund could deliver an estimated incremental 50 basis points in average annual returns over an employee’s working years1
Fiduciary Evaluation Framework
The Department of Labor (DOL) proposed regulations to identify six factors for fiduciaries to consider when selecting designated investment alternatives. While these regulations are not finalized, they provide a potential framework for evaluating the inclusion of private assets:
Performance
Evaluate expected risk-adjusted returns, net of fees, over an appropriate time horizon.
Considerations – Defined contribution solutions with private market assets are in the early stages of development and therefore may have little or no product track records for evaluation.
Fees
Determine whether total fees and expenses are reasonable in relation to the services provided, expected benefits, and reasonably available alternatives.
Considerations – Private asset investments come with higher and less transparent costs, including management fees, performance-based compensation, operating expenses, and transaction costs. Fiduciaries should evaluate total costs rather than rely solely on a stated expense ratio, and document why expected net-of-fee benefits justify any cost premium.
Liquidity
Confirm that the investment and total portfolio can meet participant-level and plan-level cash flow needs.
Considerations – Private market assets are inherently illiquid. The review should test participant and plan sponsor withdrawals, rebalancing, and stressed cash-flow conditions. Newer solutions that have not achieved critical mass may have elevated liquidity risk.
Valuation
Assess whether valuation policies produce timely, reliable, and consistently applied values for participant transactions and portfolio management.
Considerations – Private market assets do not price daily like public market securities. They also are subject to infrequent or model-based valuations and subjective inputs. Fiduciaries should review valuation methodology, frequency, independence, governance, audit, and performance reporting.
Benchmarking
Use a meaningful comparison framework that reflects the strategy’s mandate, risk, liquidity, and implementation structure.
Considerations – Private market investments lack industry-standard benchmarks that fully reflect mandate, leverage, risk, liquidity, and valuation frequency. This may create challenges for evaluating strategy and underlying manager performance.
Complexity
Ensure that fiduciaries understand the investment’s structure, risks, fees, liquidity, valuation, governance, and operational requirements, or obtain qualified assistance.
Considerations – Private market investments embed complex legal and investment structures, leverage, operational complexities, recordkeeping limitations, evolving regulatory guidance, and litigation exposure. Fiduciaries should understand when complexities of a private asset require additional expertise or assistance to adequately evaluate the investment.
Conclusion
Private assets may offer additional sources of return and diversification, but those potential benefits are accompanied by meaningful costs and risks. The relevant fiduciary question is not whether private assets are categorically appropriate for defined contribution plans, but rather whether a particular allocation, implemented through a particular structure, is prudent for the plan and its participants. A prudent process should establish investment rationale, evaluate the six factors above, confirm that operational and participant needs can be met, and provide for disciplined, ongoing monitoring.
1 Source: BlackRock, The Power of Private Markets – Unlocking the Benefits of Private Assets in Defined Contribution Plans, June 2025.
