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The Future of Alternatives: DC Pension Funds - Alternatives Adapting to New Investors - SEI

by Preqin

  • 18 Sep 2018
  • PE
  • VC
  • HF
  • PD
  • RE
  • INF
  • NR

As the alternative assets industry continues to grow, Preqin is launching an initiative examining the Future of Alternatives. In conjunction with key industry participants, we take a five-year look into the future to see where the market will be, what changes fund managers are planning for and how investors plan to invest in 2023.

This contribution is provided by Ross Ellis, Vice President of Marketing & Thought Leadership at SEI Investment Manager Services.

 We believe that alternatives will definitely be offered as part of 401(k) plans in the future, particularly as workers remain in the workforce longer, the costs associated with higher education continue to increase and the necessity to carry heavy student loan debt into the workforce continues to have a significant impact on the ability of many younger employees to participate early in workplace retirement plans.

Due to these macro trends, there is increased pressure to deliver more alpha or a longer period of time via defined contribution (DC) plans. Due to the relative illiquidity of alternatives, particularly private equity, private debt and real estate etc., structures that can handle longer-term asset lock-ups will be most appropriate.

Over the last decade, automation of DC plan features such as auto-enrolment and escalation has led to increased employee participation, particularly with younger participants; these automations have led to an explosion of assets in default products, such as target date funds (TDFs), whose popularity can also be attributed to the way they have been marketed as simple “set it and forget it” type investments. While informed asset allocation and portfolio decisions remain crucial, TDFs offer investors the ability to invest in traditional and alternative investments side by side without asking/allowing them to constantly adjust their asset class exposure as they age and move along the household savings spectrum.

Certainly, investor suitability needs to be addressed but once alternatives become an accepted and widely used part of the DC world, we envisage that the “alternatives” moniker will disappear and be treated as one of the mainstream investment options.

Download your copy of the Preqin: The Future of Alternatives here.

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