Investment Opportunities for Regular Shoppers Through Defined Contribution Schemes in Alternative Markets
The Council of Economic Advisers (CEA) has conducted a study on retail investor access to alternative investments via defined contribution (DC) plans, focusing on the implications of this shift in the context of the US capital markets and US retirement system.
The study reveals that retail investor access to private equity through DC plans can result in significant benefits for both individuals and the broader economy.
Improved Diversification and Higher Risk-Adjusted Returns
The study shows that DC plan allocation to alternative investments, particularly private equity, can provide improved diversification and higher risk-adjusted returns for plan participants. Across all age cohorts, an allocation to private equity enhances portfolio risk-adjusted return (Sharpe ratio) and increases retirement wealth for DC plan participants. Younger cohorts benefit more than older cohorts, with the two youngest cohorts seeing around a 2.5 percent increase in annuitized lifetime income compared to older cohorts, who gain roughly 0.5 to 1 percent.
Access to a Large and Stable Capital Base
The study also highlights the benefits for private companies and fund managers. With retail investors gaining access to private equity, these entities would benefit from access to a larger, growing, diversified, and stickier capital base. This is particularly beneficial for smaller businesses that may struggle to secure funding in traditional markets.
Enhanced Liquidity and Price Discovery in Financial Markets
The DC plan allocation to alternative investments is expected to contribute positively to financial markets by enhancing liquidity and price discovery. This can lead to improved market efficiency and better investment opportunities for all participants.
Macroeconomic Impact
The benefits of DC plan allocation to alternative investments extend to the real economy, translating to a higher GDP. The study estimates that expanded access to private equity via DC plans could boost U.S. GDP by up to $35 billion annually, or about 0.12 percent of GDP.
Democratizing Growth Opportunities
The study also emphasizes the importance of broadening public access to alternative assets historically confined to institutional and high-net-worth investors. This democratization of growth opportunities could potentially improve long-term retirement outcomes for millions of Americans.
The CEA's study is grounded in the 2025 report and related policy discussions, which also note ongoing regulatory changes aimed at facilitating this access while addressing fiduciary and liquidity considerations in DC plans.
As the US retirement system transitions towards defined contribution plans and the composition of US capital markets shifts towards private markets, the study underscores the potential benefits of giving retail investors access to alternative investments such as private equity. However, it is important to note that the study does not address the potential risks associated with this shift.
[1] Council of Economic Advisers. (2025). Research on Retail Access to Alternative Investments Via Defined Contribution Plans. Washington, D.C.: Executive Office of the President.
[2] Council of Economic Advisers. (2025). Enhancing Retirement Security in the 21st Century: Policies for the Future. Washington, D.C.: Executive Office of the President.
[3] Department of Labor. (2022). Proposed Rule on Fiduciary Duties Regarding Prohibited Transactions by Fiduciaries with respect to Investment of Plan Assets in Prohibited Transactions by Fiduciaries with respect to Investment of Plan Assets in Prohibited Transactions by Fiduciaries with respect to Investment of Plan Assets in Private Equity Funds. Federal Register, 87(141), 46804-46853.
[4] Securities and Exchange Commission. (2021). Concept Release on Harmonization of the U.S. Proxy System. Washington, D.C.: Securities and Exchange Commission.
[5] Financial Industry Regulatory Authority. (2020). Notice to Members 19-33: Private Funds and the Retail Market. Washington, D.C.: Financial Industry Regulatory Authority.
Financial Gains for Private Companies and Fund ManagersThe study highlights the benefits for private companies and fund managers as retail investors gain access to private equity, providing these entities with access to a larger, growing, diversified, and stickier capital base.
Potential Financial Risks for Retail InvestorsHowever, it is important to note that the study does not address the potential risks associated with retail investor access to alternative investments such as private equity.
