Fidelity Investments has begun offering a collective investment trust-based target-date series that includes a 5% allocation to direct real estate, the first time the company has placed an alternative investment in a target-date option, a spokesperson confirmed.
The new target-date series, called Freedom Plus Commingled Pool, was introduced Oct. 31 for a "broad range" of institutional retirement plans, the company said.
"Previously, this strategy was only managed for select clients," the spokesperson wrote in an email, declining to discuss how many clients have used this option.
"The client requirements to invest in Freedom Plus are consistent with the requirements to invest in Fidelity's Freedom CITs," the spokesperson added. "Qualified clients with at least $25 million in plan assets are eligible for the Fidelity Freedom Plus Commingled Pools."
Fidelity's mutual funds don't contain direct real estate or other alternatives, the spokesperson noted.
Adding an alternative investment in a retirement-plan product "may provide potential benefits to investors, including improved diversification and enhanced risk-adjusted returns," the spokesperson wrote.
"For many years, alternative investments have played a role in institutional investment portfolios due to their attractive attributes for long-term investors," the spokesperson wrote. "Recently, interest in alternative investments is growing among plan sponsors and advisers, motivated in part by the potential to improve participant investment outcomes."
As for maintaining liquidity in an investment that contains an illiquid component, "we size them in a way that we believe is prudent within the context of the overall portfolio," the spokesperson wrote. Position sizes are established with an intent to maintain sufficient liquidity in other parts of the portfolios to navigate and manage the illiquidity of alternatives."
Fidelity uses multiple alternatives managers "to provide flexibility in sourcing liquidity," the spokesperson added. "We also may invest in liquid assets to provide an additional source of liquidity if needed."
