Empower, the country’s second-largest provider of workplace retirement plans, has taken another step in “democratizing” private market investing by getting 401(k) plan providers and their employees to invest in offerings most commonly used by institutional and high-net-worth investors.
The record keeper and wealth manager announced Wednesday a partnership with private investment fund managers and custodians to offer investments through collective investment trusts that are generally only accessible to qualified retirement plans. The partners include firms seeking ways to expand their customer base for private investments, including Apollo, Franklin Templeton, Goldman Sachs, Neuberger Berman, PIMCO, Partners Group and Sagard.
Empower said the investments in private equity, private credit and private real estate will only be offered through managed accounts rather than the general 401(k) investment menu to ensure a stronger level of personalization and risk mitigation.
Providers of private market and alternative investments have been working for years to crack the workplace retirement plan market. According to the Investment Company Institute, assets in defined contribution investments stood at $12.4 trillion at the end of 2024. Meanwhile, due to state mandates and federal tax incentives, more retirement plans are expected to come online in the coming years.
“We work with 19 million Americans investing for retirement through the workplace retirement system who should have the opportunity to make investments that are outside of public markets,” Empower President and CEO Edmund F. Murphy III said in a statement. “This move is designed to provide more robust retirement options for those who want to take a new approach to their retirement savings.”
Robert Massa, managing director and Houston market retirement practice leader for Prime Capital Financial, said he continues to have concerns about advising employers to add private investment funds to their retirement plans.
“Investing in these private pools usually comes with an understanding of restricted liquidity where investors realize that their money will be tied up,” Massa said. “While I’m sure that the fund managers have this problem addressed, I remember similar promises made in 2006 about subprime mortgages and their hedging strategies.”
He also raised the issue of potentially higher expenses related to the investments, which can “run counter to a fiduciary’s responsibility under ERISA,” or the Employee Retirement Income Security Act, which governs defined contribution plans.
“If these funds also lead to underperformance, that could be a real problem in a court of law where allegations of a breach of fiduciary duty are made,” he said.
Empower said the investment is designed to complement other investment options within an advisor-managed account portfolio.
“The private investments offered through private investment managers may be accessed through CITs, a structure that provides limited exposure to pools of private equity, private credit or private real estate, providing participants with enhanced liquidity features while helping mitigate fee exposure,” an Empower spokesperson wrote via email.
Franklin Templeton CEO Jenny Johnson said in a statement with the announcement that the partnership with Empower furthers its efforts to give more Americans access to “the most dynamic and growth-oriented investments available.”
State Street Global Advisors, the asset management arm of State Street Corp., is also developing a vehicle that could attract more retirement savers to private investing.
In April, the Boston-based asset manager launched target date funds, the most prevalent investment funds in retirement plans, which include exposure to private markets. The series of TDFs gives savers 10% exposure to a blend of private assets managed by Apollo.
More innovations toward this effort will likely continue, noted retirement plan advisor Massa.
However, he gave a further note of caution via a quote from the book and movie Jurassic Park, in which a scientist addressing the risks and moral implications of recreating dinosaurs says: “Your scientists were so preoccupied with whether or not they could, they didn’t stop to think if they should.”