By Bill Alpert
Any day now, the U.S. Labor Department is expected to propose new rules designed to help 401(k) retirement plans add private credit and other nontraded assets to the stocks and bonds that retirees have relied on.
But as any financial news reader knows, investors have been mobbing the exits of nontraded private credit funds in the past month. Those funds had raised billions from wealthy individuals when high interest rates buoyed their yields. Rates are lower now and every bad loan, among the hundreds in these funds, gets a headline. Private funds at places like Morgan Stanley and BlackRock had to limit redemptions this month, because requests exceeded their allotted 5% payouts.
With that awkward backdrop, we asked retirement plan managers at BlackRock and T. Rowe Price whether they still thought that securities like private equity and credit will have a place in the target-date funds they offer to 401(k) plans.
Their answer was yes.
"It is vogue now to pick on private credit," says Andrew Jacobs van Merlen, who runs target-date funds at T. Rowe Price Group. He sees today's redemption runs as normal for late in a credit cycle. Yet private credit will continue financing the businesses bought by private equity, as well as larger investment-grade corporations.
For retirement portfolios that grow over 30 or 40 years, then pay out for another 20 or 30, some private credit seems sensible. That long time horizon lines up with the longer holding periods of private equity, credit, real estate and costly infrastructure like data centers.
And though private credit is out of vogue with some investors, it is the likeliest private asset class to consider for a 401(k) plan. Private credit loans make regular coupon payments and they have a maturity date, van Merlen notes. To get your money from an investment in private equity or real estate, you have to sell the company or the building.
The employers that sponsor 401(k) offerings for their plans also seem interested in private credit. In a recent survey of 136 U.S. plan sponsors, some 43% said that private credit was likely to show up in retirement plans in the next couple of years, says Jessica Sclafani, the global retirement strategist at T. Rowe.
If the government clears the legal obstacles to including private assets, and if plan sponsors choose them, then private market assets will enter some 401(k) portfolios -- but slowly and by very small amounts.
"We're not going from zero to 20%," says Nick Nefouse, who runs BlackRock's retirement fund business, the industry's largest. He says that retirement fund managers will start small, and dial allocations to private assets up or down, over the next five to 15 years.
Private market funds will be one more asset class that his target-date fund managers can add to the traditional mix of stock index and bond funds. It is part of a trend of adding some actively managed investment strategies to the passive indexing that has dominated target date plans, Nefouse says.
The BlackRock and T. Rowe managers all say that important details still need to be worked out, to fit private assets into the 401(k) universe. Private funds must learn to provide daily valuations and liquidity. And their historically high fees will have to drop closer to the low levels demanded by 401(k) plans.
Private credit is getting a lot of bad headlines lately, but plan managers believe it lines up well with target date strategies.
"The longer term case is alive and well," says T. Rowe's van Merlen.
Write to Bill Alpert at william.alpert@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 19, 2026 18:26 ET (22:26 GMT)
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