401(k) giant Empower to add private market investments to retirement

More retirement savers are about to see private markets investments in their portfolios.

The 401(k) giant Empower will start allowing private credit, equity and real estate in some of the accounts it administers later this year. The firm announced Wednesday that it has joined with seven firms to offer these investments, including Apollo Global Management and Partners Group.

Wall Street firms have been pushing to get private investments into the hands of individual investors, and they see the $12.4 trillion market for 401(k)-type retirement plans as crucial to this growth. Empower, which oversees $1.8 trillion in 401(k)-type plans for 19 million people, is the biggest plan provider yet to offer these investments in 401(k)s.

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The 401(k) giant Empower will start allowing private credit, equity and real estate in some of the accounts it administers later this year. (Annette Riedl/picture alliance via Getty Images / Getty Images)

“A lot of private asset managers see tremendous opportunity there,” said Ed Murphy, chief executive officer of Empower. “And we believe there are tremendous opportunities for retirement investors in private investing.”

Still, it is tough to introduce these asset classes into 401(k) plans, which typically hold public stocks and bonds. Private investments are less liquid and harder to value. And many employers—which have the final say on whether to offer these funds for their employees—tend to avoid investments with high fees for fear of being sued.

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Empower partnership funds are likely to charge fees ranging from 1% to 1.6% of the portfolio balance annually. The average target-date mutual fund fee is about 0.28%, according to Morningstar Direct.

The private investments will be offered only through some managed account services on Empower’s platform. Managed accounts are professionally-managed portfolios tailored to a 401(k) investor’s age, risk tolerance and wealth level.

Private investments are less liquid and harder to value.

Murphy said five employers have signed on to offer private investments in their 401(k) plans when they become available through Empower in the third quarter. He wouldn’t name the companies.

If an employer decides to allow private investments in its plan, the managed-accounts adviser will determine how much of each investor’s portfolio to allocate to them. Murphy said the typical amount might range from 5% to 20%, depending on factors including age.

Asset managers are developing products for regular investors that include private assets.

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State Street last month introduced a target-date fund that targets a 10% allocation to private investments managed by Apollo….