BlackRock (NYSE: BLK) is making a significant move to bring private market investments directly into the retirement accounts of everyday workers across the United States.
The investment giant announced earlier this year that target-date mutual funds overseen by Great Gray Trust would begin allocating between 5% and 20% of their capital to privately held businesses.
This marks one of the first initiatives of its kind for 401(k) plans, where private investment options have historically been nearly impossible for ordinary workers to access.
The move comes as the broader stock market grows increasingly difficult to navigate, with risks rising and rewards becoming harder to capture through conventional investment strategies.
BlackRock notes that privately owned ventures return approximately 50 more basis points annually than stocks on average, a difference that compounds significantly over time.
Over a 40-year investment horizon, that advantage could make 401(k) account balances roughly 15% larger than they would be using only conventional stock-based funds.
Workers will not automatically gain access to these new fund options, as 401(k) plan sponsors and administrators must first decide that adding them serves employees’ best interest.
BlackRock manages the well-known iShares family of exchange-traded funds and believes the performance case for private assets will make it straightforward to win over plan sponsors and administrators.
Some publicly traded instruments already provide access to private markets, including business development companies like Main Street Capital (NYSE: MAIN) and Brookfield Asset Management’s (NYSE: BAM) Brookfield Renewable Partners (NYSE: BEP) (NYSE: BEPC).
Hedge fund manager Bill Ackman is also planning a new venture fund designed to give non-institutional investors access to companies that have not yet gone public but eventually will.
Demand for private market exposure has been growing, partly fueled by the recent initial public offering of Space Exploration Technologies, widely known as SpaceX, which enriched early insiders far more than post-IPO investors.
The concentration of the S&P 500 is adding further urgency to the conversation, with the index’s 10 biggest companies collectively accounting for nearly 40% of its total value.
Technology stocks alone represent nearly as large a share of the index, making the case for diversification through alternative investments increasingly compelling for retirement savers.
BlackRock’s entry into this space is widely expected to prompt other investment firms to introduce similar private market offerings for 401(k) plans in the near future.
