For defined contribution plan sponsors, alternative investments have become increasingly common.

Mega plans—with assets in the billions and hundreds of millions—were historically more likely to include alternatives such as core private real estate. The asset class was most prevalent among large corporate plans, but that has evolved, explains Jani Venter, executive director, defined contribution fund management, real estate Americas at JP Morgan.

“Historically, it’s been large corporate and public plans with custom structures that made the decision to include real estate, because of the asset class benefits,” she says. “There’s also a smaller component of investors holding exposure through core menu white-label funds or operating portfolios.

She adds that public DC 457 plans have also increased access to alternatives.

Plan Prevalence: TDFs Dominate
Plan sponsors are including alts like private real estate through multi-asset strategies situated within target-date funds, says Jennifer Perkins, managing director and defined contribution portfolio manager at LaSalle Investment Management.

“Multi-asset strategies are the biggest accumulator of assets within defined contribution plans; by and large, the target-date fund,” she says.

She explains that alternatives’ inclusion within DC plans is growing.

“The increased use of outsourced CIOs from the consultant community is also a way in which plan sponsors are using white-label funds that consultants would put together through their OCIO teams,” Perkins says.

Venter explains that the largest growth for private real estate alts in DC plans is from plans that operate under the Employee Retirement Income Security Act, a 1974 federal law governing defined benefit and DC plans.

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