Tags: 401k | Higbee | alternative | assets

Partners Group's Higbee: Give 401(k) Investors Access to Alternative Assets

By Dan Weil   |   Monday, 03 Feb 2014 07:23 AM

Investors in 401(k) plans should have the ability to invest in alternative assets, such as real estate, private equity and private debt, says Scott Higbee, a partner at money manager Partners Group.

"More than 50 million Americans rely on 401(k) plans for their retirement that typically are self-managed and restricted to a combination of traditional assets of stocks, bonds and cash," he writes in The Wall Street Journal.

"These defined-contribution plans generally don't provide investors with the opportunity to add a range of alternative assets to the mix. Given the current dismal yields on mainstream fixed-income securities, they should."

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Sponsors of 401(k) plans should include alternative assets in their funds so that investors can get adequate diversification to counteract long-term market volatility, Higbee suggests.

Part of the onus is on regulators too, he notes. The Labor Department and the Securities and Exchange Commission need to let fund managers know that they can offer alternative-asset investments without fear of litigation.

"In today's environment, many trustees of defined-contribution plans are hesitant to permit alternative investments in their 401(k) offerings due to the lack of legal precedent and corresponding guidelines," Higbee explains.

Meanwhile, many investors have bought alternative-asset mutual funds outside of their 401(k) accounts, but haven't gained the performance and diversification they sought, Tim McCarthy, financial author and former chairman and CEO of Nikko Asset Management, writes in an article for U.S. News & World Report.

That's because "they buy and continue to hold a particular alternative fund based on two premises," he says. "Each year, they expect the fund to beat the Standard & Poor's 500 Index. They want the fund to have daily liquidity at all times."

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