As alternative investments play an increasing — albeit still small — role in defined contribution plans, private equity remains a laggard in adoption by plan executives.
Consultants aren't surprised, saying plan executives are concerned about fees, the illiquidity of private equity investments and the lack of daily valuations. They also cite the need to educate both plan participants and plan executives, as well as the reluctance of record keepers to support private equity investments on their platforms.
“There is still a long way to having many alternatives in DC plans, and private equity isn't the first choice,” said Christopher Lyon, a partner at Rocaton Investment Advisors LLC, Norwalk, Conn.
“Private equity is the most challenging alternative to incorporate into a defined contribution plan,” said Toni Brown, director of U.S. client consulting and DC segment leader for Mercer Investments in San Francisco. “I'm not convinced it will have a prominent role,” she said.
James Veneruso, Chicago-based vice president, fund sponsor consulting, for Callan Associates Inc., referred to a steep learning curve and asked: “How do you educate plan sponsors and how does that filter down to participants?”
None of Rocaton's, Mercer's or Callan's clients offers private equity to their plan participants.