Private markets in defined contribution plans, though not nascent, have caught the retirement industry’s attention since President Donald Trump’s August 7 executive order encouraging the inclusion of private assets as investment options in 401(k) plans.
In a white paper released Wednesday, Cerulli Associates and the Defined Contribution Alternatives Association explained that the industry is “poised to overcome key operational hurdles” by fitting private market strategies into the same framework as public ones.
“The DC industry should engage in myth busting, as there are shared misconceptions … and concerns about the use of private markets in DC plans,” the paper stated. “It is critical for the industry to begin communicating that these solutions exist and are professionally managed products with sensible allocations that will allow participants to access their assets when they need them and meet their retirement obligations.”
Myth 1: Investing Directly via the Plan Menu
“The headline, ‘Private equity is coming to DC,’ sounds great. It’s real punchy and real catchy,” says Chris Bailey, a director in Cerulli’s retirement practice. “It’s not as cool as ‘Private real estate and private equity are coming to your plan through a target-date fund or managed account where … you’ll have a professional manager allocating them for you.’ But that’s what’s [actually] being proposed.”
Cerulli’s paper first addressed the “myth” that plan participants will invest directly in private markets via the plan menu. According to the firm, if private assets are included in a plan menu, a participant will only be able to access them through a participant investment option: either a target-date product or a managed account.
In the case of target-date products, allocations to private markets would be professionally managed in a similar way to equity and fixed-income allocations: by selecting a target-date vintage, the firm’s researchers wrote. Managed accounts would incorporate additional factors to fine-tune allocations to private markets based on a participant’s planned retirement date, risk tolerance and investable assets, among other factors.
“Providers are not suggesting plan sponsors add standalone private markets products to their core investment menu and leave participants to decide whether and how to invest in the option,” the paper summarized. “Rather, the solutions proposed provide professional management and oversight to enable participants to access these assets.”
Myth 2: Illiquidity Problems
“I think the [myth] most prohibitive [to plan sponsors and advisers looking to invest in private assets] is the idea that participants can’t get their money out,” Bailey says. “That when you’re retiring, or in the event of an emergency, some form of your assets will be left behind. That’s one of those factors that … slows down the conversation or raises a lot of concern from folks.”
Cerulli challenged those assumptions. While acknowledging that private equity, private credit and real estate are illiquid asset classes, the report cast doubt that illiquidity is entirely prohibitive. The research found that asset managers, including private markets managers and their collective investment trust trustees, are collaborating to offer the levels of liquidity to which the DC system is accustomed, Cerulli’s paper explained. While some asset managers plan to maintain only quarterly liquidity in their underlying private market strategies, plan participants themselves will likely still have daily liquidity via other products that do not contain private market assets.
Through participant investment options, asset managers have developed ways to provide DC plans with liquidity, Cerulli reported. For instance, off-the-shelf target-date funds and other multi-asset-class solutions offer potentially appealing approaches to managing liquidity at the target-date product level.
The paper stated that the solutions allow liquidity management at both the target-date level and the individual private market strategy sleeve level. The glide path or asset allocation manager can introduce liquidity using public strategies within the target-date product, while the private market strategy sleeve can maintain pure exposure.
In addition, the paper stated that a private market strategy sleeve can offer liquidity when managers wrap their strategy inside a CIT with either a cash holding or a public strategy.
“Private market assets would essentially compose a sleeve of the target-date fund CIT,” says Daniil Shapiro, a director of Cerulli’s product development practice. “It’s possible the private markets sleeve itself is also composed of CIT or a different structure (e.g., an interval fund) holding private market assets.”
“Conversely, in a managed account or advisor-managed account, each individual private markets exposure would need to have its own liquidity sleeve,” the paper stated. “In this instance, as with offering liquidity at the sleeve level of a target-date product, there is potential to make the exposure less concentrated than the original strategy.”
When asked how returns from private market assets would compare to those from public markets, Shapiro stated that the impact on performance would depend on the assets used to provide liquidity.
Myth 3: Opening the Floodgates of Litigation
Large and mega plan sponsors and advisers have been navigating litigation related to their fiduciary duties to participants for years. However, Cerulli’s research participants expected that regulatory guidance will help plan sponsors and other fiduciaries implement a wider range of investment options for participants in accordance with Employee Retirement Income Security Act standards.
“The most persistent challenge is … a perception of litigation risk,” says Shapiro.
The paper conceded that plan sponsors will remain concerned about litigation exposure, then predicted that robust education related to implementation design, third-party oversight and real-world analogues will shift concerns to confidence in implementing exposures to private market assets.
“An industry expectation exists that with time and successful private market strategy implementation in DC plans, litigation risk will be refined to focus on ensuring that such strategies are included with proper oversight, with some [survey] participants going as far as to say that litigation risk will over time be transformed to focus on those plans not offering access,” the paper stated.
Myth 4: A Lack of Daily Valuation Makes Private Assets Unsuitable for DC
Unlike most DC plan investments, private market assets are not valued daily because they are not traded on exchanges and do not experience regular pricing events.
The lack of daily valuation is often considered either an operational challenge or a potential inequity for those trading the assets before or after valuations occur, Cerulli stated. But the paper also noted that the perception will be outweighed by how small a portion of DC plans private market assets will make up.
PLANADVISER asked Shapiro why private market assets in DC plans will be useful, despite how minimal of a share they will comprise.
“In the short term, it’s essentially a completion exposure that does something that public markets can’t—improving specific outcomes,” Shapiro explained in response. “As private markets continue to grow, it becomes more and more critical.”
“Just as importantly, procedures are being implemented to use market factors to provide the most accurate, up to date, reporting possible,” Cerulli’s report stated. “Those building products to offer private markets investment access …—with the help of valuation agents—are creating processes using direct valuations and sophisticated estimation processes … to strike a daily [net asset value], allowing for the mitigation of true-up risk.”
The paper cited a 2025 Cerulli survey that found that 59% of private market managers who were looking to offer their strategies in the DC sector plan to use a combination of third-party valuation and internally derived asset pricing to support the valuation process.
“There’s a case to be made that DC plans really are a great place to do this,” says Bailey. First, “you have advisers and consultants doing due diligence on these products. Then, you have the plan sponsor who’s working with the consultant or adviser to determine, ‘Does this meet the needs of my participants? Does it improve the outcomes of our participants?’”
Cerulli’s research was based on interviews conducted during the year’s second quarter with more than 35 industry executives, including plan sponsors, recordkeepers, intermediaries, collective investment trust companies and public and private asset managers.