Just like any retirement investment, private equity carries risks. Because it is uncharted 401(k) investing territory, no data exist detailing the risks or rewards of PE within a target date fund.
Not all financial advisors are keen on the idea.
"I don't believe that finding newer, sexier investment options—that are also more complex and harder to employ effectively—is the key to helping the majority of Americans make better use of their elective, defined contribution 401(k) plans," said Tim Maurer, vice president at Financial Consulate.
Education is a significant hurdle for PE firms hoping to get products into sponsored plans. Both employers and workers will need a lot of hand-holding to deal with an investment class to which they have not had access since 401(k)s were created 30-plus years ago.
Pantheon is still looking for its first client: a large plan with enough scale to get the private equity platform operating cost effectively. Since Labor Day, Riak and his colleagues have met with 50 potential clients.
Looking longer term, firms probably will start offering stand-alone PE retirement funds. When those pitches come, plan sponsors will find themselves in a different ball game in terms of fiduciary responsibility, management and liquidity—an enduring problem with PE investments.
When a large swath of Americans face retirement shortfalls, Maurer said, plan sponsors should be focused on ensuring proper saving levels and reducing plan fees—rather than looking for new ways to jack up returns.
—Anthony Volastro, Segment Producer, CNBC