Private Equity Boosts Retirement Savings, But Not Without Trade-Offs
Private-market investments could improve retirement outcomes, but their benefits depend as much on savings behavior, plan design and implementation as on asset selection, according to new CFA Institute research. The report cautions that higher fees, illiquidity and opaque valuations could prevent modeled gains from reaching defined-contribution plan participants.
Private Equity Produces the Highest Wealth
The report modeled target-date funds containing private equity, private debt, infrastructure, real estate or venture capital. Researchers used Monte Carlo simulations to compare those portfolios with a baseline fund invested only in public equities and bonds.
Under its primary 40-year scenario, the baseline fund produced average ending wealth of $1.316 million. Replacing 10% of the portfolio with private equity increased that figure 13% to $1.489 million and lifted the average annual Sharpe ratio to 0.531 from 0.462.
Private equity also improved outcomes at both ends of the distribution. The fifth-percentile result rose to $506,000 from $414,000, while the 95th-percentile value increased to $3.324 million from $3.069 million. However, private equity produced the highest volatility among the portfolios studied.
Increasing private equity to 20% raised average projected wealth to $1.684 million, 28% above the baseline. Volatility also increased, illustrating the risk-return trade-off plan sponsors would need to evaluate. Venture capital delivered a more modest increase, producing average ending wealth of $1.35 million with a 10% allocation.
Defensive Assets Reshape the Risk
Private debt, infrastructure and real estate did not increase average wealth in the main simulation. Their ending values ranged from $1.293 million to $1.301 million, slightly below the public-market baseline. Those assets instead reduced the variability of outcomes. Infrastructure produced volatility of $812,000, compared with $939,000 for the baseline, while its fifth-percentile result reached $458,000. Private debt and real estate generated similar defensive characteristics.
As a result, all three produced higher risk-adjusted returns despite lower average ending balances. CFA Institute said private equity and venture capital should be viewed as growth assets, while private debt, infrastructure and real estate may be more useful for reducing outcome volatility.
Combining growth and defensive private assets could further lower variability, but it may also reduce average wealth and upside potential. The report did not endorse a universal allocation.
“Private market access is not, by itself, a retirement strategy,” said Raymond Pang, Senior Researcher at CFA Institute, and co-author of the research. “The relevant question is what problem an allocation is intended to solve and whether it improves outcomes for participants after fees.”
Pang said the modeling found no single formula. “Results changed with the asset class, its interaction with public assets, and the fund’s glide path, while the accumulation period could have a larger effect than the private market allocation itself.”
Plan Design May Matter More
The analysis found that regular contributions, the length of the accumulation period and the transition from stocks to bonds could affect retirement outcomes as much as, or more than, the private-market allocation. A 10% private allocation made little difference during the first 30 years of the model. Differences widened during the final decade, when the target-date fund shifted toward bonds but maintained its private-market exposure.
“Safe harbor, on its own, is insufficient” to ensure satisfactory outcomes, the report said. CFA Institute recommended gradual adoption through regulated vehicles, disciplined allocation limits and clear supervisory expectations.
The findings arrive as private assets move toward a larger role in workplace retirement plans. About 70% of U.S. private-sector workers had access to a defined-contribution plan as of March 2025, compared with 14% who had access to a traditional defined-benefit pension. U.S. target-date funds held an average 68.3% in public stocks and 28.3% in fixed income in 2024, leaving only a small share for alternatives.
Regulatory Opening, Fiduciary Test
The Labor Department proposed a rule in March establishing a process-based safe harbor for fiduciaries selecting 401(k) investments. The framework asks sponsors to assess performance, fees, liquidity, valuations, benchmarks, and complexity rather than treating alternative assets as categorically unsuitable. The proposal followed a 2025 executive order encouraging broader private-market access.
The stakes are substantial: employer-sponsored retirement accounts held about $14.2 trillion in assets last year. Asset managers view target-date funds as the most practical path for introducing private assets because participants receive diversified exposure rather than selecting individual private funds.
CFA Institute warned that its results are simulations, not forecasts. Private-market indexes may not replicate investable products, while infrequent appraisals can smooth reported returns and understate volatility. Traditional private funds also commonly charge management and performance fees well above those of public-market index funds.
For plan sponsors, the report’s message is less an endorsement than a framework: identify whether an allocation is intended to raise growth, reduce volatility or strengthen downside protection, then test whether the expected benefit survives fees, valuation lags and liquidity demands.
“…the key question is whether 401(k) plan fiduciaries can prudently determine that private investments improve outcomes net of fees while maintaining adequate liquidity, reliable valuation practices, and clear participant understanding. Our analysis shows that the answer depends on the asset class and the design of the plan,” said Olivier Fines, CFA, head of advocacy and policy research at CFA Institute.