"Throughout my career, I’ve overseen a range of institutional asset strategies, including pension funds, endowments, and private portfolios. In each of these situations, we implemented a diversified portfolio of alternative asset strategies to capitalize on diversification benefits and total return potential.
In the early stages of my career at MissionSquare Retirement, I recognized that our clients and their defined contribution plans lacked the means to leverage the unique characteristics offered by alternatives within a diversified portfolio.Over time, we converted our fund platform to Collective Investment Trusts vehicles, providing us the opportunity to establish a dedicated sleeve of diversified alternative strategies within our MissionSquare Retirement Target Funds.
We've created a vehicle that enables us to capture the diversification benefits and return characteristics of these strategies, all while adhering to the liquidity requirements of a traditional defined contribution offering. Today,investors in our target date funds can indirectly participate in a diversified portfolio of private equity, private debt, and real asset strategies."
—Wayne A. Wicker, CFA and SVP & Chief Investment Officer at MissionSquare
"BlackRock believes Defined Contribution plans should be provided the same tools and investment options as are available to their Defined Benefit counterparts, as adjusted for the unique attributes of the DC ecosystem, including the introduction of private market alternatives into Target Date Funds where the net of fee investment case makes sense.”
Head of Product & Strategy, Retirement Group at BlackRock
“We added private markets investments to our TDFs with the goal of improving performance and diversification. Our state has a longstanding and successful defined benefit private markets program, which includes private equity, real estate, and tangible assets. We saw clear benefits in incorporating these asset classes into our custom TDFs to help generate appropriate risk-adjusted growth for each participant age group.”
Executive Director, Department of Retirement Systems – State of Washington
“We believe that incorporating an allocation to private markets can help bring the diversification and risk efficiency characteristics of sophisticated institutional portfolios to individual participants. Since the launch of our flagship target date funds in 2005, an allocation to core private real estate has been a hallmark of our approach. Since then, the diversifying and volatility dampening qualities of real estate have helped us deliver a smoother ride for our participants, across multiple market cycles.”
Portfolio Manager and Head of Target Date Fund Strategies at JPMorgan Asset Management
Considering Private Real Estate as a Foundation of DC Plan Multi-Asset Investment Options
Trends in DC Plan Investments for U.S. Plan Sponsors and Industry Stakeholders
Liquidity Framework For Inclusion Of Alternative Assets in DC Plans
A Guide for U.S. Plan Sponsors and Industry Stakeholders
Industry Group DCALTA Issues Liquidity Framework for Inclusion of Alternative Assets in DC Plans
Press Release for Liquidity Framework Paper
Does Private Equity Enhance
Retirement Investment Outcomes?
Evidence from the Experience of Pension Funds
Has the Lack of Asset Diversification in DC Retirement Plans Been a Costly Missed Opportunity?
A new report from Georgetown University’s Center for Retirement Initiatives (CRI) and CEM Benchmarking (CEM) finds that adding illiquid assets, such as private equity, real estate, and infrastructure, to the target date funds (TDFs) of defined contribution (DC) retirement plans would have resulted in a 0.15% (15 basis points) increase in return per year over a decade. When applied to all U.S. target date options, such an increase would currently represent $5 billion in additional annual net returns.
Core private real estate fortifies defined contribution multi-asset portfolios
Defined benefit plans, endowments, and foundations have long enjoyed the benefits of investing in private real estate, namely diversification, lower volatility of returns, a hedge against inflation, and the potential for improving risk-adjusted investment performance. This paper considers the current inflationary environment, and the impact core private real estate can have, not only in defined contribution (DC) target date portfolios, but also in multi-asset inflation-sensitive options for participants.
Expanding 401(k) Options with Cryptocurrency
How and why the new crypto investment
option brings the 401(k) into the 21st century
Daily Valuation of Alternative Assets in DC Plans
Consistent with our mission of enhancing retirement outcomes, DCALTA has published a practical framework to provide plan sponsors clarity on the implementation of daily valuation of private assets.
DCALTA-IPC Research Paper: Why Defined Contribution Plans Need Private Investments
We examine the impact of including private investment funds into diversified (e.g., balanced and target date fund) portfolios that otherwise hold only public stocks and bonds. Our analysis utilizes a comprehensive sample of 2,515 U.S. private equity funds to create simulated portfolios for 1987-2017 that invest part of their overall equity allocation in these funds. We find that investing in private funds always increases average portfolio returns and reliably increases Sharpe ratios (return per unit of risk). The results are robust when accounting for the inclusion of higher fees for the private portfolio and while randomly selecting a few funds from each vintage year (e.g., 10), suggesting that the results are feasible in practice for many investor types.
Introducing Objective Benchmark-Based Attribution in Private Equity
In this article, we propose that in private equity, measurement of asset manager (general partner [GP) skill should begin with a repeatable benchmark-based performance attribution, which is then extended to explicitly quantify sources of alpha. Furthermore, in this article, we lay out a framework for repeatable measurement of performance attribution. Modern proxy benchmarks form a key component of this framework by enabling public market information to systematically inform private equity performance.
Quantifying Arbitrage Opportunities in DC Plans/Super Funds arising from Reporting Lag
Some of the features enabling private markets to generate outsized returns are incompatible with how Defined Contribution ("DC") pension plans operate: for institutions functioning in a daily pricing environment, it can be difficult to invest in asset classes that only provide episodic liquidity. However, as private markets have evolved, new investment structures have emerged which have the potential to resolve this dilemma.
Putting Investment at the Heart of DC Pensions
Without long-term returns, schemes do not have an effective way to facilitate good retirement outcomes. And without long-term finance, the economy cannot produce those returns and contribute to wider prosperity.