DC Plans Slow to Adopt Alternative Investments

May 1, 2024 — Boston

This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes product trends as of March 2024, including mutual funds and exchange-traded funds (ETFs), and assesses institutional investors’ interest in allocating to alternative investments.

Highlights from this research:

  • After rare inflows in February, mutual funds reverted to modest outflows of $11.2 billion in March, led by $24.6 billion leaving active products. Taxable bond funds—both active and passive—continued to bring in flows, garnering $28.4 billion, while U.S. equities shed $22.1 billion.
  • ETFs posted exceptionally robust flows of $102.5 billion in March and approached $9 trillion in assets. Strong initial flows into cryptocurrency products helped boost flows in alternative ETFs, a smaller category accounting for 3% of total assets, posting inflows of $12 billion in March.
  • As alluring as an investment such as private equity (PE) may appear to the average institutional-level investor, alternatives are not yet compatible with defined contribution (DC) plan sponsor incentives and regulatory requirements, due to their relative illiquidity and opaque nature. The numbers are a stark reminder that while there may be explosive growth in institutional and retail use of private markets, more than half of defined contribution investment-only (DCIO) asset managers surveyed either have no plans to add or have not yet considered adding two of the largest private market fund types to their offerings. Alternative managers are acutely aware of this lack of interest; when they were given a list of the top institutional prospects for alternatives over the next 24 months, DC plans placed last, with just 15% expressing interest in the 401(k) market.

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Note to editors

These findings and more are from The Cerulli Edge—U.S. Monthly Product Trends, April 2024 Issue.

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