The Biden administration is urging pension fiduciaries to scale back their private fund ambitions, but alternative investment advocates are still claiming an outsized victory, reports affiliate title Regulatory Compliance Watch.

In a new supplemental letter, the Department of Labor wants you to know that, even while the Trump administration narrowly okayed some private funds for some defined contribution plans, Washington, DC “did not endorse or recommend such investments.” In fact, “plan-level fiduciaries of small, individual account plans are not likely suited” for private fund investments, the letter states.

“A plan-level fiduciary that has experience evaluating PE investments in a defined benefit pension plan to diversify investment risk may be suited to analyze these investments for a participant-directed individual account plan, particularly with the assistance of a qualified fiduciary investment adviser,” the DoL says in the December 21 letter. “The Department cautions against application of the information letter outside of that context.”

Could be worse

Private fund advisers aren’t thrilled with the new supplemental letter. They’re also not devastated. Some had feared the Biden administration would repeal the narrow approval altogether.

The new letter “uses some inartful language and makes some unhelpful distinctions between ‘small’ and ‘large’ plans,” Defined Contributions Alternatives Association president Jonathan Epstein wrote to his group’s members shortly after the supplemental letter came out. But “it does not change the substance of the [2020] letter – that private equity, and by implication other alternative assets, may be a prudent investment for [defined contribution] plans.”

‘Some stakeholders’


In the new supplemental letter, Labor says it agrees with “some stakeholders” that the 2020 approval aped the talking points of private fund advocates. It was “not balanced with counter-arguments and research data from independent sources,” the DoL now says.

“For example, some stakeholders expressed concern about representations that designated investment alternatives with a PE component ‘offer plan participants who have longer investment horizons an equities-based investment choice that may enhance retirement outcomes when compared to investment choices containing only publicly traded securities,’” the supplemental letter states. “The stakeholders challenged this assertion and warned that performance calculations must be carefully analyzed because they are not standardized or regulated like disclosures from registered investment companies (mutual funds).”

Those same unnamed stakeholders “expressed concerns about the adequacy of investment disclosures,” the DoL claims. “The stakeholders also observed that retirement savers may often need to liquidate or transfer these assets at an earlier stage than many long-term investors, especially workers that frequently change jobs,” the letter states.

No objection

Epstein says his group has no objection to being careful about private funds in pension plans. “We support,” he wrote in his e-mail to members, “enhancing the retirement security of DC plan participants by the inclusion of alternative assets in a format that meets all the following criteria:

  • As a modest allocation within a long-term focused, multi-asset fund option (such as a target date fund) on a DC plan menu…
  • Through a well-diversified portfolio that includes alternative assets that are
  • Professionally managed and
  • Within a prudent structure designed for the needs of DC plan savers.”