Why wealthy investors put $125 billion into -2-

Eric Gregory, member at Dickinson Wright who advises employers on company retirement plans, said private equity also faces the challenge of so-called dry powder, which is money from its investors waiting to be deployed. If alternative managers draw in a further injection of capital from retail investors, they could be even more challenged to put all those assets to work.

"Private Equity is complicated and it has a longer time horizon and higher fees," Gregory said. "A retirement plan administrator would have to consider if it's appropriate to offer those features."

If private-equity firms are able to draw in more retirement money from defined contribution plans, it would open up a world of trillions of dollars and help compensate for the dwindling number of traditional pensions, also known as defined benefit plans.

Defined contribution plans tipped the scales at $10.2 trillion in the second quarter, up 8.5% from $9.4 trillion in the year-ago period, according to the Investment Company Institute. Private-sector defined benefit plans rose by 6.7% to $3.2 trillion from $3 trillion during the same time period.

But for now, private-equity continues to grow from other investors such as wealthy individuals and by moving into management of insurance company assets, among other newer areas.

"The biggest challenge we're facing is willingness to be a first mover," said Josh Lichtenstein, partner, Ropes & Gray. "It's sort of a chicken and the egg problem. If there were a number of defined contribution and 401K plan sponsors already doing it, there would be a lot doing it."

Also read: Private equity: Everything you always wanted to know about this $12 trillion asset class but were afraid to ask

-Steve Gelsi

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11-25-23 0951ET

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