Empower adds private markets to 401(k) plans

[UNITED STATES] Empower, a leading U.S. retirement services provider managing $1.8 trillion in assets for approximately 19 million savers, has announced plans to incorporate private market investments—including private equity, credit, and real estate—into select 401(k) plans starting in late 2025. This initiative aims to democratize access to traditionally exclusive investment opportunities, partnering with prominent asset managers such as Apollo Global Management, Goldman Sachs, and Pimco.

Expanding Access to Private Investments

Historically, private market assets have been accessible primarily to institutional investors and high-net-worth individuals due to their illiquidity, high fees, and regulatory restrictions. However, with fewer companies going public, these assets have become increasingly attractive for their potential to hedge against inflation, generate returns, and diversify portfolios.

Empower plans to offer these private investments through collective investment trusts (CITs), which will provide limited exposure to private assets. Employers will need to collaborate with advisors to implement these offerings via managed account platforms tailored to individual risk profiles and long-term goals.

Empower's CEO, Edmund F. Murphy III, emphasized the importance of guidance and risk mitigation in introducing these investment options, positioning the initiative as a way to responsibly introduce a new investor class to private markets.

Investor Interest in Private Market Access

A 2024 survey by Schroders revealed that 36% of U.S. retirement plan participants would consider allocating part of their portfolios to private equity or private debt if these options were available. Notably, 80% of these participants indicated that access to private investments would likely increase their overall contributions to their retirement plans.

Among those interested, 52% would allocate less than 10% of their workplace retirement assets to private assets, while 34% would allocate between 10% and 15%.

Industry Perspectives and Challenges

Major asset managers and plan providers are increasingly interested in increasing the share of private assets in the $12.5 trillion workplace retirement plan market. BlackRock CEO Larry Fink has stated that blending public and private markets has been a "great investment" for many institutions.

However, the integration of private assets into 401(k) plans is not without challenges. Concerns persist over potential liquidity issues and higher fees associated with private investments. Additionally, a significant portion of plan participants (51%) do not understand the benefits of adding alternatives to their retirement portfolios, and 64% perceive alternative investments as risky.

Looking Ahead

Empower's initiative marks a significant step toward broadening access to private market investments within retirement plans. As the program rolls out in late 2025, it will be closely watched by industry stakeholders and participants alike. The success of this initiative will depend on effective education, transparent fee structures, and careful management of liquidity risks to ensure that these investment options serve the best interests of retirement savers.