Education about the asset class, including rewards and risks, will be central to adoption
Pershing Prime Services today announced the release of a new paper to help alternative fund managers better understand what to consider when looking to include liquid alternatives in defined contribution (DC) plans. The paper, Liquid Alternatives and the Opportunity in Defined Contribution Plans, is the latest in Pershing Prime Services' Executive Insights series, which was developed to provide fund managers with information on the liquid alternatives convergence movement.
According to the paper, the retirement market may be the next frontier for the growth of liquid alternatives. As plan advisors are increasingly focused on new strategies to improve plan participant outcomes, liquid alternatives may present an opportunity to diversify retirement portfolios. The paper underscores the critical role that education will play in the adoption of liquid alternatives among DC plan fiduciaries, advisors and participants.
"The potential expansion into DC plans presents an opportunity for liquid alternative managers to help DC plan advisors understand how this asset class can fit into plan participants' retirement portfolios," said Mark Aldoroty, head of sales and relationship management for Pershing Prime Services. "As all parties become more comfortable with alternatives, the opportunity to include them in a plan's investment strategy is likely to expand."
Since liquid alternatives are relatively new and don't come with a decades-long benchmarking history, fact-based education and training will play a central role in their adoption by DC plan fiduciaries, advisors and participants. Education should focus on both the benefits and risks of these investments in a portfolio, according to the paper. The paper also points out the need to change the conversation around risk in 401k plans from investment selection risk to retirement adequacy risk.
"At a time when strategic retirement planning is crucial to so many participants, there is a greater expectation among participants for more investment options that fit their retirement savings goals," said Rob Cirrotti, head of retirement solutions at Pershing. "DC plan fiduciaries should educate themselves on new products and explore whether these products will fit into their DC plan investment menu."
The paper also explores:
Elements of an attractive DC plan-focused alternative offering
How fund managers can address common reservations among plan advisors and fiduciaries
What DC plan advisors should consider communicating to DC plan fiduciaries
Critical evaluations for DC plans to make when considering alternative investments