T. Rowe CEO Says ‘No Question’ Private Assets Coming to 401(k)s

T. Rowe Price CEO Rob Sharps dropped a bombshell prediction this year: private assets are coming to retirement plans. “There’s no question that eventually it will happen,” he declared in April, speaking after the asset manager’s first-quarter earnings call. The statement underscores a seismic shift in how retirement savings might be managed—replacing some traditional stocks and bonds with investments like real estate, venture capital funds, or infrastructure projects.

The rationale is straightforward: retirement investors have long-term horizons, and private assets often deliver higher returns over time—albeit with less liquidity. Sharps argues that 401(k) participants, who typically hold their savings for decades, can afford to lock up capital in illiquid assets in exchange for potentially better gains. T. Rowe Price, which manages $1.6 trillion in total assets—including $1 trillion tied to retirement plans—is already moving to capitalize on this trend, exploring partnerships with alternative investment managers to bring these options to mainstream retirement accounts.

The push into private assets isn’t just theoretical. The $1.6 trillion asset manager has been quietly building infrastructure to handle the complexities of alternative investments, such as valuations and compliance. “The industry is moving toward expanding retirement options beyond traditional securities,” Sharps said, noting that T. Rowe’s focus on innovation is key to staying competitive.

But the shift isn’t without challenges. Private assets lack daily liquidity, which could spook investors accustomed to being able to sell their holdings at any moment. Regulatory hurdles also loom: the Department of Labor’s fiduciary rules, for instance, require 401(k) plans to ensure investments are in participants’ best interests. Yet Sharps is unfazed. “The demand is there,” he said, pointing to the success of alternatives in institutional pensions, which have long used private markets to boost returns.

The data supports Sharps’ optimism. Institutional investors, including pensions and endowments, have poured hundreds of billions into private assets over the past decade, achieving average annual returns of 8–12%, versus 6–8% for public equities. For example, the Yale Endowment, a pioneer of alternative-heavy portfolios, has generated a 10.1% annual return over 20 years, outperforming public market benchmarks.

Critics, however, warn that 401(k) participants—many of whom lack the financial sophistication of institutional investors—could be exposed to risks they don’t fully understand. “Private assets are a double-edged sword,” said one retirement plan advisor. “They’re great for long-term growth, but if a participant needs cash quickly, they might face penalties or losses.”

Sharps acknowledges the concerns but argues that T. Rowe’s due diligence and education programs can mitigate these issues. “We’re not just pushing products—we’re building solutions,” he said. The firm is reportedly developing “private asset sleeves” within mutual funds, allowing 401(k) investors to access alternatives without direct illiquidity.

The broader industry is already moving in this direction. Fidelity, BlackRock, and others have launched private market access vehicles for retail investors, though none have yet integrated them into standard 401(k) plans. T. Rowe’s aggressive stance could force the industry’s hand.

In conclusion, the shift toward private assets in retirement plans is inevitable, driven by the math of long-term returns and the evolution of institutional investing. T. Rowe’s $1 trillion in retirement assets and its strategic partnerships position it to lead this charge. While challenges like liquidity and regulation remain, the firm’s confidence—and the data behind its claims—suggest this is no pipe dream. As Sharps put it: “The train is leaving the station.” The question now is, who will board it first?

Data note: T.ROWE PRICE GROUP INC (TROW) has seen its stock rise 15% year-to-date as of May 2024, outperforming the S&P 500 by 8 percentage points. This reflects investor confidence in its strategic bets.