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Reimagining Retirement: Alternative Investments in Defined Contribution Plans

by Camille Clemons

May 06, 2025 Collective Investment Trusts

The following article is for general informational purposes only and should not be construed as legal, tax, investment, financial or other advice. See full disclaimer below.

The future of retirement investing is at a crossroads — and nowhere was that more evident than at the recent DCALTA (Defined Contribution Alternatives Association) annual meeting. One theme throughout the meeting was that traditional tools of defined contribution (DC) plans, predominantly public equities and fixed income, may no longer be sufficient on their own to meet the evolving needs of retirement savers. With changing market dynamics, limited investment universes and increasing life expectancies, plan participants may need more. They may need access to private markets.

The industry is beginning to confront this challenge head-on, and the conversation is shifting from if alternative investments belong in DC plans to how we get there.

A Shrinking Public Market Universe, and a Growing Gap

One of the most compelling arguments for including alternative investments in DC plans is the reality that public markets no longer offer the same breadth of opportunity they once did. IPO activity has slowed, M&A volumes have dropped and the number of publicly traded companies remains well below historic highs — with McKinsey & Company reporting more than 8,000 in the late ‘90s to approximately 6,000 today (Private markets: A slower era). In contrast, the same report states that private markets have exploded in both size, over $13 trillion globally in 2023, and complexity, with significant innovation in areas such as private credit, secondaries and venture capital.

Yet for most DC plans these asset classes remain out of reach. McKinsey estimates fewer than 5% of DC plans offer meaningful access to private assets, largely due to legacy barriers, fiduciary concerns and operational constraints. These limitations potentially hurt the very people DC plans are designed to serve: long-term savers who need diversified, durable portfolios to support them beyond their working years.

Technology and Data: Unlocking the Next Phase

One of the more encouraging themes from the DCALTA meeting was the critical role technology can play in breaking down these barriers. The concerns around pricing, valuation frequency and benchmarking — all legitimate — are increasingly solvable through the use of data science, predictive analytics and Artificial Intelligence (AI).

For example, monthly estimation models for exit pricing, powered by machine learning, could offer a scalable path to support DC plan structures. Similarly, new benchmarking approaches, such as manager-based benchmarks or targets like the Russell 3000 + 3%, provide more appropriate comparisons for evaluating alternative strategies like private equity or private credit.

These tools don’t simply make alternative investments more administratively feasible, they can potentially offer a level of transparency and consistency that can build trust with plan sponsors, regulators and participants alike.

Building Confidence Through Education and Clarity

Despite growing momentum, education remains one of the biggest hurdles. There are still misconceptions around alternative investments, particularly in DC contexts, and many advisers, sponsors and participants don’t yet understand how these investments work, what they offer or how they fit into the broader portfolio.

Hedge funds, for instance, are often mistakenly thought of as a single asset class, when in fact they represent a diverse range of strategies across asset classes and risk profiles. Alternatively, consider private credit, which, while fast becoming one of the most active strategies in interval and tender offer funds, still requires deeper context. Who are the borrowers? Why now? How does it fit into a DC glidepath?

We also need to demystify structural and access-related questions. Can collective investment trusts (CITs) or exchange-traded funds (ETFs) offer a viable way in? Are there opportunities to create DC-specific share classes? How do we responsibly incorporate hard-to-value and/or illiquid assets while addressing valuation risk and liquidity constraints?

These are not easy questions to answer, but they are necessary ones. The path forward lies in innovation, education, and practical guidance for plan sponsors and fiduciaries across the investment ecosystem.

What’s next?

As we explore this new frontier, we must resist the urge to treat alternative investments as a passing trend or a niche solution. Alternative investments are already a core part of institutional portfolios, and access by DC participants may be next. It will take a combination of art and science, policy and product innovation. And perhaps most importantly, it will take a collective commitment to evolve, because while the pace may be gradual, conversation is essential.

A Continuation of the Conversation

We’ll continue exploring these critical questions at our upcoming Cohen Client Conference, where we’ll bring together experts from the ecosystem to discuss implementation strategies, regulatory developments, product innovation and more.

We invite you to be part of the conversation, help shape the future of DC investing and explore how alternative investments can be an investment option for plan participants.

Learn about our unique services to CITs

The content of this post is for general informational purposes only and should not be construed as legal, tax, investment, financial or other advice. Nothing contained in this post (i) constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction; (ii) professional and/or financial advice, or (iii) a comprehensive or complete statement of the matters discussed or the law relating thereto. No representation is made that the information contained in this post is accurate in all material respects, complete, or up to date or that it has been independently verified. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information in this post before making any decisions based on such information.

About the Author

Camille Clemons

Market Leader, Alternative Investments, Cohen & Co Advisory, LLC
cclemons@cohenco.com
312.221.5004

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