Private equity firms are ramping up their efforts to penetrate the $12.5tn workplace retirement plan sector, despite ongoing concerns over complexity, liquidity, and costs.

Currently, private equity represents less than 1% of defined contribution plan assets, yet firms such as Apollo Global Management, Blackstone, and KKR see significant growth potential.

The industry’s push gained momentum following a policy shift under the Trump administration, which permitted private equity inclusion in 401(k) plans within professionally managed investment funds. Advocates argue that private markets offer diversification and potentially higher returns compared to traditional publicly traded assets. However, challenges such as limited liquidity, opaque valuations, and higher fee structures have made plan sponsors hesitant.

Apollo’s CEO, Marc Rowan, recently underscored the potential of private investments in retirement portfolios, stating that returns from such strategies are “50% to 100% better” than conventional options. However, regulatory scrutiny remains a barrier. The Biden administration has taken a more cautious stance, cautioning that private equity may not be suitable for most retirement savers.

Transparency remains a key issue, as private equity investments do not provide the same disclosure as public market assets. Higher fees, including both management and performance charges, also deter employers from integrating such options into their retirement plans. While ETFs typically charge around 0.51% in fees, private equity firms often collect 2% in management fees and 20% of profits.

Despite these challenges, proponents argue that plan sponsors could face legal risks if they fail to include private investments. Given the superior long-term performance of private markets, some suggest that future lawsuits might challenge the exclusion of alternative assets from retirement plans.