Bringing Economic Analysis to the Debate Over Private Markets in Defined Contribution Plans

Private markets play an increasingly important role in capital formation, business expansion, and job creation, but access to those investment opportunities remains limited for most retail investors. The recent proposal from the Department of Labor (DOL), Fiduciary Duties in Selecting Designated Investment Alternatives, seeks to address this access gap by establishing an asset class–agnostic, process-based safe harbor that would better allow plan fiduciaries to, where appropriate, incorporate private market investments within defined contribution (DC) plans. Policy debates of this importance should be grounded in structured empirical analysis.

ICI’s comment letter to the DOL included a detailed economic study of how adding a private market allocation within an investment option could affect DC plan portfolios. ICI’s economists examined findings from academic literature on private fund performance and conducted three quantitative exercises: applying statistical methodologies to unsmooth private market asset returns, analyzing a mean-variance efficient frontier, and simulating target date fund (TDF) glide path outcomes. 

Together, ICI’s findings show that, when measured carefully and incorporated prudently, private market assets can provide opportunities for DC plan participants and support more diversified long-term retirement portfolios.

Defined Contribution Plans Are Well Positioned to Provide Access

Millions of Americans have participated in public markets through their DC plans, accumulating $13.8 trillion in retirement savings in these plans as of March 2026. Many do so through TDFs, which are widely used within DC plans, providing participants with an easy-to-understand, well-diversified investment option that is professionally managed and rebalanced over time. TDFs are a natural vehicle for delivering measured private market asset allocations to plan participants. 

Academic Literature Points to Potential Outperformance in Certain Asset Classes

Academic literature on private fund performance is contested, but recent studies, on balance, point to modest net-of-fees risk-adjusted outperformance for certain asset classes. Estimated risk-adjusted private fund performance varies materially with the choice of performance benchmark, risk model, sample construction, and measurement period. 

For example, the same asset class can appear to deliver positive or negative risk-adjusted returns depending on the methodology applied. Overall, the weight of recent findings suggests positive net-of-fees risk-adjusted returns for private equity buyout funds and, in a smaller but growing body of work, private credit and infrastructure funds. However, venture capital, real estate, and certain other fund strategies do not appear to deliver risk-adjusted outperformance in recent work.

Adjusting for Return Smoothing Provides a Clearer View of Risk

Reported net asset values (NAVs) for private funds tend to be determined through fair value methodologies that often blend information across multiple reporting periods. This dampens measured return volatility, produces positive autocorrelation in reported returns, and weakens measured correlations with public markets—features that, left unadjusted, would overstate the diversification benefit of an allocation to private assets. 

Our analysis applies three well-established unsmoothing techniques from academic literature. All three methods substantially increase measured volatility and reduce first-order autocorrelation in reported returns, consistent with a substantial correction of the smoothing bias.

Private Market Assets Can Improve the Risk-Return Profile of Retirement Portfolios

Using quarterly returns and a portfolio optimization process that imposes investment constraints on private market assets, our analysis indicates that a public-plus-private efficient frontier can offer meaningful diversification benefits with an improved risk-return profile relative to a public-only portfolio. 

For instance, our results suggest that at an annualized expected return of 7%, the public-only efficient frontier has an annualized volatility of 6.7%, while frontiers with allocations to private assets that are constrained to be at most 20% reach the same 7% expected return with lower annualized volatility (5.3% to 5.5%, depending on the private return unsmoothing method used). Additionally, the estimated Sharpe ratio of the optimal portfolio improves between 19% and 23% depending on the unsmoothing method used. These results are directionally consistent with academic and practitioner studies.

Figure 1: Private Market Exposure Increases Estimated Sharpe Ratios Between 19% and 23%
Estimated Sharpe ratio of the optimal portfolio

Note: The public-plus-private Sharpe ratios include those calculated from smoothed returns (reported) and each of the three return unsmoothing methodologies, including the Geltner autoregressive model (Geltner), the GLM moving-average model (GLM), and the Dimson lagged-beta model (Dimson).  
Source: Investment Company Institute calculations of Preqin (a part of BlackRock) and Refinitiv data

TDF Simulations Indicate the Potential for Improved Outcomes for Retirement Savers 

Across 100,000 simulations of a hypothetical 40-year career with an annual 10% contribution rate, a TDF with a 20% allocation to private market assets generates an estimated median account balance that is 12% higher than the public-only baseline. 

Additionally, in 94% of the simulations, TDF portfolios with private market asset allocations produced higher balances at retirement age than the public-only option. These estimated results largely stem from the diversification benefits gained by including private market assets in the TDF. Our findings are broadly consistent with recent practitioner reports conducting similar exercises.

Figure 2: Simulations Indicate That Private Market Allocations Can Improve Outcomes for Retirement Savers
Ending account balance percentiles in millions of dollars

Note: Simulations randomly draw historical quarterly returns between Q1:2010 and Q3:2025 over a 40-year period (160 quarters).
Source: Investment Company Institute calculations of Preqin (a part of BlackRock), Morningstar, and Refinitiv data

Preserving Fiduciary Standards While Expanding Choice

The DOL’s proposal gives plan sponsors a clearer, process-based framework for satisfying their fiduciary obligations when considering investments that incorporate private market assets in DC plans. Retirement savers deserve a policy debate that is grounded in data, evidence, and careful economic analysis. ICI’s research indicates that retirement savers can benefit from the option to access private market assets through DC plans.