Curious as to whether 401k advisors are seeing demand from plan sponsors for this asset class.
David, many plans are increasing the number of asset classes available to participants, including alternative asset classes such as Real Estate and Natural Resources/Commodities. There is also an increase in the availability of asset classes such as Emerging Markets, Foreign Bonds, and TIPS. Another trend is in the increases presence of a managed model option, so that employees can have a professional advisor manage their investments for them according to predetermined risk-based models. In my view, the managed option is probably one of the best things for the average investor because then they don't have to become experts to enjoy the benefits of a well designed portfolio. Research corroborates this, too, that participants in managed models tend to get better, and more consistent results than self-directed investors.
While it is likely that alternative investments will find their way into 401(k) plan lineups, it is questionable whether this will serve to benefit plan participants. Alternative investments tend to lack transparency, provide limited liquidity, and may lack a secondary market. These factors increase risks to investors which may exceed a level which is prudent for retirement funds, especially since the 401(k) has become the predominant savings vehicle for employees. Additionally, the fees charged by alternative investments are generally much higher than those charged by mutual funds and ETFs. For example, many hedge funds charge 2% of assets under management and 20% as a performance fee. This means that 20 cents of every dollar earned by investors may be charged as a fee by the investment manager. This model does not work in reverse, however, as investors are generally made to absorb all losses incurred by the hedge fund. With all of the flexibility and variety available with mutual funds and ETFs (many funds employ derivatives such as futures, forwards, repos, and swaps to achieve their investment objectives) investors seeking alternative investments might substantially increase the risk within their portfolios without experiencing any additional returns (and possibly experiencing bigger losses). As a result, investors are strongly urged to consider the possible downsides of holding alternative investments before gambling with their retirement funds. I hope you found this answer helpful. If you have any additional questions, please feel free to reach out.
Yes, some plans are beginning to show what might be termed alternative investments. A lot of return chasing can happen though as certain asset classes might shine but that shine can turn dull veyr quickly if momentum changes.
Yes, it is part of a diversified portfolio. if you want alternative assets, ask you plan sponsor to add them
Somewhat. But, in my view it rarely makes sense. Hindsight is always 20/20. Best of Luck!