A year after the executive order to allow alternatives into 401(k) retirement accounts, managers have established defined contribution teams, partnered up and launched new funds, yet there are still barriers blocking the $14tn opportunity. Aysha Gilmore reports…

Private credit managers have been hiring defined contribution (DC) experts, launching new products and striking partnerships in a bid to win a slice of the near $14tn (£10.5tn) 401(k) market in the US. But despite moves by President Donald Trump and the Department of Labor (DOL), litigation risk and lingering reservations still loom over businesses.

In August 2025, Trump signed an executive order directing federal agencies to review regulations so private credit – and other alternative assets – could be more easily put into 401(k) retirement accounts.

Following on from the move, in March, the DOL proposed a rule establishing a set of process-based “safe harbors” for plan fiduciaries when selecting designated investment alternatives in 401(k)s, removing some uncertainty in areas such as valuation and fees.

In essence, the changes are intended to encourage employers and plan sponsors to consider alternative investments by looking to reduce their exposure to litigation over retirement plan investment decisions. That liability risk has long made employers cautious about offering more complex investments, particularly private market assets.

“There has been a lot of work behind the scenes,” explains John Payne, managing director at Brookfield, leading its global DC strategy and business. “It has taken more than a decade, probably closer to 20 years.”

Since the executive order and the following rule, the chatter around private markets entering 401(k)s has indeed accelerated somewhat due to its income generation characteristics and long-term nature, with DC teams popping up across alternative managers as firms move quickly to establish a presence in the space.

“The focus has shifted from pure concept discussions toward product design and operational execution,” says Ainun Ayub, head of product for real assets at Citco.

Private credit heavyweight Blackstone launched a DC business unit in October 2025, sitting within its private wealth business and headed by Heather von Zuben.

Meanwhile, partnerships have gathered pace between alternative managers and traditional asset managers to bring private market strategies to 401(k) investors. Alternatives bigwig Apollo partnered with Schroders to develop blended public and private market funds for wealth and pension clients in both the US and UK.

Similar tie-ups include those between KKR and Capital Group to deliver integrated retirement and wealth funds, and Wellington Management, Vanguard and Blackstone, with the goal of getting private equity and private credit into target date funds.

Several other managers have also been developing ways to package private markets exposure through professionally managed vehicles, like target-date funds and adviser-managed accounts. Rather than investors selecting private assets directly, private credit and other alternatives will be embedded within broader retirement products.

BlackRock is among those leading the push, announcing a target-date fund that embeds allocations to private equity and private credit within 401(k) portfolios through the Great Gray Trust.

ABC [ONE]

Another notable example is ABC [ONE], launched through a partnership between AllianceBernstein, Brookfield and Carlyle. The solution provides a private markets allocation, including private credit, designed to sit alongside target-date funds or managed accounts in DC plans.

Speaking to Alternative Credit Investor, Jennifer DeLong, AllianceBernstein’s head of DC, and Adam Kornegay, managing director of DC, suggest that the firm is now bringing ABC [ONE] to market and developing underlying collective investment trusts (CITs), which it expects to be ready for funding in early 2027.

Global asset manager AllianceBernstein has been a major player in the space for some time, managing around $140bn in DC assets, including $107bn in target-date solutions.

“We are now out talking about the product with industry partners, including consultants, record keepers, and registered investment advisors who have practices in the space,” Kornegay says.

ABC [ONE] is designed as a single source of private markets exposure for a DC plan’s qualified default investment alternative, according to the firm. The allocation adjusts exposure to private credit, managed by AllianceBernstein, private real assets, managed by Brookfield, and private equity, managed by Carlyle, depending on the participant’s age.

DeLong explains that the strategy increases private credit exposure as participants approach retirement, focusing on capital preservation and income. While private equity will play a larger role earlier in the investment journey, with real assets being used throughout.

Brookfield, which manages ABC [ONE]’s real assets sleeve, stated that when the fund goes to market, it will recommend a 10 per cent allocation to private markets.

“We believe the appropriate range will fall somewhere between 10 and 20 per cent as the US DC market evolves,” Payne, who joined Brookfield a year ago to build out its DC presence, tells ACI.

One defining feature of the strategy is the collaboration between multiple managers, he said. Another is that it is not simply a static allocation to a single private market strategy.

“Other solutions in the marketplace are mainly static, single-sleeve offerings,” Payne adds. “I think we will start to see more multi-manager private solutions come to market.”

Record keeper push

The move into 401(k)s is not only being driven by asset managers, with record keepers, which are US retirement account administrators, also becoming increasingly important in making private market strategies accessible.

Viraaj Kumar, head of retirement product and strategy at ISS Market Intelligence (ISS MI), explains that record keepers are becoming “big proponents” of alternatives in 401(k)s. Platforms such as Empower are helping to create “the dam-busting moment for these private allocation strategies” by making them available.

An example being Blackstone partnering up with Empower in January to distribute private market strategies that companies can offer to employees.

However, despite the growing interest and progress in developing products, allocations to private credit and private equity across the US DC market remain limited. According to ISS MI data, the largest reported alternative asset exposure among DC plans is currently in real estate, accounting for 80.9 per cent of holdings at $122.7bn and 12.2 per cent at $18.5bn for global real estate, based on 2024 filings. Overall, still barely scratching the surface of the $14tn market.

While exposure in the filings is “up significantly from 2023”, Kumar tells ACI, adoption of private equity and private credit remains low.

The litigation bottleneck

Currently, the industry suggests that the biggest obstacle to private market flows into 401(k)s is still litigation risk, which explains the absence of private credit and equity in plans.

“The real bottleneck that has prevented the floodgates from going wide open is still the potential litigation,” says Robert Wolfe, managing director and wealth management adviser at Apollon Wealth Management. “The US is a very litigious society.”

Despite the proposed DOL rule including “safe harbors” being viewed as a step in the right direction, significant flows into alternatives are unlikely until the final rule arrives.

“There is still this threat of litigation until the rules get finalised. That will open the floodgates,” Wolfe adds.

Compared with other global pension systems, the US DC market is often seen as behind when it comes to alternatives. Australia’s superannuation system, with around A$4.5tn (£2.3tn) in assets, is one of the world’s largest investors in private markets. While in the UK, DC master trusts have already started increasing their private markets exposure following initiatives such as the Mansion House Accord.

The US challenge partly comes from the structure of the 401(k) system, which gives individuals significant choice. However, products such as ABC [ONE] mean investors receive a professionally managed allocation that includes a component of private markets, typically through default funds.

“We wouldn’t do it any other way,” says Brookfield’s Payne. “Professional oversight is essential when you consider factors such as liquidity and daily valuation.”

Sentiment and backlash

Another challenge could be market sentiment. Recent headlines around retail-focused business development companies (BDCs) in the US experiencing elevated levels of redemptions have raised concerns about private credit, including questions around lending standards and exposure to the software sector.

Ultimately, this could hinder public perception of the asset class in retirement accounts, explains Simon Tang, head of US at Carta limited partner portfolio analytics.

“It is more about sentiment,” he says. “What we are seeing in headlines around BDCs doesn’t help around getting the public comfortable with private credit.”

The harsh reality from the BDC market movements, one manager says, is that “retail money in all its forms is the hottest money”. These headlines could potentially lead policymakers in Washington to question whether private markets are suitable for retail investors, they add, noting that “it has had enough headlines, and they may not want that spilling over into the 401(k) discussion”.

However, Chris Shaw, head of retail alternatives at Citco, argues that recent market activity has shown that these products can function as designed, shifting away the concern.

“The question is not whether private market products can mirror the liquidity of public mutual funds but whether they can provide enough liquidity to support their intended role within a participant’s overall retirement allocation,” he says. “The recent BDC experience suggests that with appropriate sizing and product design the answer can be yes.”

It is important to also note that BDCs and 401(k) products are very different structures. Robert Stark, president and deputy chief executive of Nomura Asset Management International, explains that the liquidity concerns associated with retail BDCs are unlikely to be replicated in 401(k)s, where private market exposure would sit within professionally managed retirement vehicles. Therefore, managers can structure portfolios around the liquidity requirements of DC plans and participants.

AllianceBernstein’s Kornegay says liquidity is one of the reasons these strategies need to sit within professionally managed products.

Liquidity can be managed through several layers for these products, including public market allocations within target-date funds, liquid sleeves within private market vehicles and redemption features within interval funds, reducing the need to sell private assets to meet participant withdrawals, he tells ACI.

“Together, with those three levels of liquidity, you have a sophisticated glidepath manager at the top, which enables us to give participants the liquidity they need,” he says.

Fees and independent valuations are also key challenges for alternatives in 401(k)s, both of which expected to be addressed in the finalised DOL rule.

“The asset class [private credit] is not the risk; it is the wrapper and the sizing, both dialled in properly, we will be in good size and shape,” says Wolfe.

Warming demand

Still, although there hasn’t been widespread demand for products currently, alternatives in 401(k)s have become a “hot topic” among advisers and at industry conferences, Kumar says, suggesting that sentiment is warming.

“After the safe harbor implementation [within the proposed DOL rule] and post education around topics, this will really pick up,” he says. “The proprietary data that we receive from 2026 is starting to show that trend of flows actually coming into the target-date constructs.”

Payne adds: “If you look at member surveys, the sentiment is positive. If you look at it at an industry level, sentiment is warming, and I think that will continue as the DOL clarifies its guidance and settle.”

Ultimately, adoption of private markets, particularly private credit, in 401(k)s depends on several steps: regulatory approval, platforms building products, companies and sales teams becoming familiar with the offerings, trustees approving their inclusion, and participants accessing them.

Managers may have cleared the first hurdle, with some already moving beyond the second, but the education process will take time.

While some early flows are expected, industry participants believe adoption will build gradually, moving from small initial allocations to more meaningful levels over the next three to five years as confidence grows and the regulatory framework becomes clearer.