America’s $12.4 trillion defined contribution (DC) retirement savings system, centered around workplace 401(k) plans, accounts for nearly half of global retirement finance assets. For the past four decades, the system has served tens of millions of working Americans, steadily rolling out innovations like automatic enrollment, automatic contribution escalation, target date funds, and managed accounts.
But notwithstanding these innovations, U.S. DC investment allocations have been stuck—stubbornly limited to investing only in publicly traded stocks and bonds. As a consequence, U.S. DC savings plans have overlooked a growing array of private market investment opportunities—real estate, private equity, private credit, and infrastructure—that are considered core assets in the world’s leading defined benefit (DB) pension funds, endowments, and sovereign wealth funds.
It’s time that changed.
A new financial era
For decades, 401(k) portfolios benefited from a tailwind of falling interest rates and rising equity prices. But today’s higher-rate environment and volatile equity returns mean that simply riding the wave of traditional asset classes may no longer be enough to meet participant retirement goals.
Private markets offer a compelling alternative. While they have a different liquidity profile and require more due diligence, they also provide access to differentiated sources of return, including infrastructure projects that benefit from inflation-linked cash flows and private credit strategies that can outperform in tighter credit markets.
U.S. public pension funds like CalPERS and Texas Teachers have invested in private markets for decades. Why, then, should tens of millions of 401(k) savers be denied access to these same beneficial strategies?
The future of the 401(k)’s continued relevance will be reliant on additional investment avenues that only the private markets can provide.
Global allocation best practice
Canada’s much-respected DB pension funds, including the Ontario Teachers’ Pension Plan and the Canada Pension Plan, allocate more than 25 % of their investments to private assets. Australia’s DC superannuation funds, the U.K.’s retirement savings plans (including the National Employment Savings Trust), and pension funds in Sweden, Denmark, and the Netherlands have done the same.
These respected institutions have long-engaged private market assets because over long-term investment horizons, they offer high risk-adjusted returns, diversification, and low correlation with public equity markets.
Academic and financial case for private markets
Modern portfolio theory has always told us that diversifying across uncorrelated asset classes is the most reliable way to reduce risk and enhance long-term returns. Private market investments provide just this kind of diversification. What’s more, pension funds investing in privates are able to harvest a “liquidity premium” that rewards investors for allocating to long-term strategies that are undistracted by the need to offer daily pricing and liquidity.
For long-term 401(k) investors with multi-decade horizons, short-term liquidity isn’t a major concern. A typical 401(k) plan participant in their twenties, thirties, or even forties may have 30 years before they need to tap into their savings. This correlates neatly with the extended holding periods of real estate, private equity funds, and infrastructure projects. Middle-class DC retirement savers should benefit from strategies that align their investment and retirement time horizons, as has long been standard practice for DB pension funds and endowments.
The incredible shrinking equity market
The evolving structure of contemporary capital markets is also an important factor. Over the past generation, the U.S. public equity market has shrunk dramatically—from some 8,000 publicly traded companies in the 1980s to about half that today. At the same time, private markets have been booming. Many of the most valuable and innovative companies in the world—notably in the energy, health, and technology sectors—have remained private well into maturity, bypassing the IPO route that dominated in decades past.
As a result, many of the fastest-growing companies are now funded by venture capital and private equity, not public equity markets. DC investors have only seized opportunities in the public markets but have been unable to access to some of the most dynamic segments of capital markets and the global economy.
U.S. public equity markets have also become remarkably concentrated. As of 2025, the so-called “Magnificent Seven”—Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, and Tesla—made up more than 30% of the S&P 500, creating historically unprecedented market concentration risk. The incorporation of private assets in DC plans could play an important strategic role in mitigating that risk through asset class diversification.
The tools are ready
Skeptics often point to fiduciary concerns, regulatory risk, or the challenge of illiquidity. Among them is Sen. Elizabeth Warren, whose concerns I recently addressed after she outlined them in a letter to me upon learning about Empower’s plans to give 401(k) investors access to private markets and with President Donald Trump poised to sign an executive order to make it easier.
But these hurdles are not prohibitions—they are opportunities for innovation. The financial industry has created structures like private equity funds-of-funds, interval funds, collective investments trusts, and semi-liquid real estate vehicles that allow for some liquidity while maintaining exposure to private market returns.
21st-century investment opportunities
There is no single magic bullet for solving the U.S. retirement challenge. But expanding the 401(k) system to include the consideration of private market assets is one of the most promising new opportunities. Plan sponsors, asset managers, and record-keepers have been given regulatory safe harbor and are well-positioned to lead—prudently, transparently, and inclusively. The next decade of DC plan innovation will define retirement outcomes for a new generation of savers. Let’s give them access to the full range of 21st-century investment strategies.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
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