America’s $12.4 trillion defined contribution (DC) retirement savings system, centered around workplace 401(k) plans, accounts for nearly half of global retirement finance assets. For the past four decades, the system has served tens of millions of working Americans, steadily rolling out innovations like automatic enrollment, automatic contribution escalation, target date funds, and managed accounts.
But notwithstanding these innovations, U.S. DC investment allocations have been stuck—stubbornly limited to investing only in publicly traded stocks and bonds. As a consequence, U.S. DC savings plans have overlooked a growing array of private market investment opportunities—real estate, private equity, private credit, and infrastructure—that are considered core assets in the world’s leading defined benefit (DB) pension funds, endowments, and sovereign wealth funds.
It’s time that changed.
A new financial era
For decades, 401(k) portfolios benefited from a tailwind of falling interest rates and rising equity prices. But today’s higher-rate environment and volatile equity returns mean that simply riding the wave of traditional asset classes may no longer be enough to meet participant retirement goals.
