Private Assets in Retirement Portfolios: A New Frontier for 401(k) Investors

The investment landscape for retirement savings is undergoing a seismic shift. For decades, 401(k) participants were confined to a narrow universe of publicly traded assets—stocks, bonds, and mutual funds. But today, nearly half of 401(k) plan participants are demanding access to private assets like private equity, real estate, and infrastructure. This surge in demand, driven by a desire for diversification and higher returns, is being amplified by regulatory tailwinds that are dismantling long-standing barriers. For institutional gatekeepers and individual investors alike, this marks a pivotal moment: the opportunity to reallocate retirement portfolios toward alternatives before broader adoption erodes their edge.

The Investor Sentiment Shift: From Aversion to Appetite

Recent surveys underscore a dramatic change in investor sentiment. According to a 2025 Schroders study, 47% of 401(k) participants would invest in private assets if given the option. Empower's “Accelerating Access” research reveals even stronger alignment: 79% of participants believe they should have the same investment opportunities as institutional investors, and 74% see private assets as a tool to build wealth previously reserved for the ultra-wealthy.

This shift is not merely aspirational. Millennials, in particular, are pushing for modernization, with 64% stating that access to private investments would make their retirement strategy feel competitive. Advisors are taking note: 68% of financial advisors already use private market investments in high-net-worth accounts, and 58% would recommend them in retirement plans. The case for alternatives is clear: diversification, inflation hedging, and the potential for alpha generation in a low-yield environment.

Regulatory Tailwinds: Democratizing Access to Alternatives

The August 7, 2025 executive order, Democratizing Access to Alternative Assets for 401(k) Investors, has accelerated this transition. By rescinding the DOL's 2021 Supplemental Private Equity Statement—a document that had discouraged private equity in retirement plans—the administration has signaled a policy pivot. The DOL is now tasked with clarifying ERISA fiduciary standards for alternative assets, while the SEC is reviewing definitions of “accredited investor” to lower barriers for 401(k) participants.

These changes are critical. Historically, regulatory ambiguity and litigation risks deterred fiduciaries from offering alternatives. Now, with clearer guidance on the horizon, institutional gatekeepers—plan providers, advisors, and custodians—are recalibrating their strategies. For example, Empower's research shows that 76% of participants support expanding 401(k) options to include professionally managed private investments. This creates a virtuous cycle: as more plans adopt alternatives, liquidity and infrastructure for these assets will improve, further legitimizing their role in retirement portfolios.

Strategic Allocation: Capturing Alpha and Diversification

The case for immediate reallocation is compelling. Private equity and real estate, for instance, offer low correlation to public markets. Over the past decade, private equity indices have outperformed the S&P 500 by an average of 3-4% annually, while real estate has provided stable cash flows and inflation protection.

However, timing is critical. As adoption grows, the “alpha premium” of private assets may diminish. Early adopters who allocate now—before these strategies become mainstream—stand to capture the most value. For example, a 10% allocation to private equity in a retirement portfolio could enhance long-term returns by 200-300 basis points, according to Empower's modeling.

Institutional Gatekeepers: Navigating Complexity and Risk

While the opportunities are vast, institutional gatekeepers must navigate challenges. Liquidity constraints, high fees, and valuation opacity remain significant hurdles. Advisors must balance these risks with the potential rewards, ensuring participants understand the long-term horizon required for private assets.

Education is key. Gatekeepers are developing tools to explain concepts like illiquidity and fee structures, while some are offering alternatives through professionally managed funds to mitigate complexity. For instance, a target date fund with a 15% allocation to private real estate could provide diversification without exposing participants to direct ownership.

The Road Ahead: Act Now, Adapt Later

For 401(k) investors, the message is clear: the window to capture the benefits of private assets is narrowing. Regulatory clarity and growing demand are creating a fertile ground for alternatives, but these opportunities will not last forever.

Investors should consider a phased approach: start with a 5-10% allocation to professionally managed private funds, then gradually increase exposure as infrastructure and transparency improve. For advisors, the priority is to build robust due diligence processes and participant education programs.

In a world where traditional assets struggle to outpace inflation, private assets offer a path to retirement security. The question is no longer if to allocate, but how soon. As the regulatory and market landscapes evolve, those who act now will be best positioned to reap the rewards of this new frontier.