A Guide to Coordinating Alternative Investments Within a Fiduciary Framework

4 days ago
6 min read

Interest in alternative investments in retirement plans has grown as portfolios evolve. Plan sponsors increasingly assess how new asset classes may support diversification and long-term outcomes for plan participants.

At the same time, fiduciary duties under the Employee Retirement Income Security Act require investment decisions to follow a disciplined, prudent process.

This is why coordinating alternative investments within a fiduciary framework has become an important focus in modern wealth management.

While alternatives such as private equity, private credit, and hedge funds may expand diversification, they also introduce complexity around liquidity, valuation, governance, and fees. A structured framework helps ensure these decisions follow a well-documented process.

Key Takeaways

Alternative investments can be evaluated within a fiduciary framework, but only through a disciplined, prudent process.
Regulatory discussions have explored broader access to alternative assets, while fiduciary duties under ERISA remain unchanged.
Liquidity, valuation, structure, fees, and ongoing monitoring remain central considerations for plan fiduciaries.

How Alternative Investments Fit a Fiduciary Framework

At its core, coordinating alternative investments within a fiduciary framework means integrating complex investment strategies into retirement plans while maintaining strong governance and oversight.

This involves more than selecting an investment manager. Plan fiduciaries must evaluate several factors before adding new plan investment options, including:

The role of the asset class within overall investment strategies
The structure of the investment vehicle
Operational requirements of the defined contribution plan
The needs and behavior of plan participants
The ability to monitor investments over time

In practice, alternative assets may include private equity investments, venture capital, private credit, hedge funds, digital assets, and other private market investments.

These investments differ from traditional public market investments such as mutual funds. They often involve longer investment horizons, limited liquidity, more complex valuation of underlying assets, and layered fee structures that may lead to higher fees.

Because of these characteristics, alternative investments require careful evaluation. Decisions should be supported by thorough due diligence, a disciplined fiduciary process, and ongoing oversight within the broader fiduciary framework.

Why Alternative Investments Are Receiving Renewed Attention

Alternative asset classes have long played a role in institutional portfolios such as pension funds, endowments, and foundations.

These investors often allocate capital to private funds and other private market investments to diversify portfolios and access opportunities beyond traditional public markets.

More recently, the discussion has expanded to defined contribution plans, where some plan sponsors are evaluating whether alternatives could support diversification and long-term outcomes for DC plan participants.

Several factors have contributed to this increased attention:

Greater focus on private market investments among asset managers and alternative asset managers
The development of professionally managed structures incorporating alternative asset classes
Growing interest in expanding access to alternative assets within diversified retirement portfolios

Despite this interest, plan fiduciaries remain cautious. Alternatives often involve higher fees, limited transparency, and operational complexity compared with traditional investment options.

For this reason, fiduciaries must carefully evaluate these investments before expanding plan menus.

Regulatory and Policy Context

In recent years, policy discussions and regulatory guidance from federal agencies have examined how retirement plans might responsibly expand access to alternative assets.

These conversations often involve agencies responsible for market oversight, including the Securities and Exchange Commission, as well as regulators administering the Employee Retirement Income Security Act.

At times, broader policy discussions have referenced initiatives such as a federal executive order aimed at encouraging innovation in retirement plan investment design.

However, these developments do not change the core fiduciary obligations under ERISA.

Plan fiduciaries must still:

Conduct appropriate due diligence
Ensure investments serve the interests of plan participants
Maintain strong governance and oversight
Document their decision-making process

In practice, regulatory discussions reinforce an important principle. Expanding access to alternative assets does not replace the need for a disciplined fiduciary process.

Determining Whether Alternatives Belong in a Plan

Before evaluating specific strategies, plan sponsors should first clarify their objectives.

Key questions may include:

Does the plan seek broader diversification across alternative asset classes?
Could private market investments complement existing public market investments?
Are alternatives appropriate for the demographics of DC plan participants?

Equally important is understanding participant behavior within participant-directed plans. Contribution patterns, withdrawals, and employee turnover can influence whether certain investment strategies are suitable.

A thoughtful review may lead to different outcomes. Some plans may incorporate alternatives through professionally managed structures, while others may conclude that the complexity outweighs potential benefits.

Both outcomes can reflect sound fiduciary responsibility when supported by strong governance, careful analysis, and a well-documented fiduciary process.

Implementation Structures Matter

In most retirement plans, alternatives are not offered as standalone investment options. Instead, exposure to alternative assets is typically delivered through professionally managed vehicles such as target date funds, multi-asset portfolio strategies, or managed accounts.

These structures allow plan fiduciaries and plan sponsors to incorporate allocations to private equity, venture capital, and other private market investments while maintaining compatibility with the daily operations of a defined contribution plan.

Standalone private fund options, by contrast, can create operational and communication challenges in participant-directed plans. Liquidity management, valuation of underlying assets, and participant reporting may become more difficult.

For this reason, committees must evaluate both the underlying investments and the implementation structure. The objective is not simply to expand access to alternative assets, but to ensure the approach aligns with the governance, operational needs, and fiduciary oversight of the DC plan.

Building a Prudent Fiduciary Process

A strong fiduciary framework depends on a disciplined, repeatable review process.

Assess internal expertise

Committees should determine whether they have the expertise to evaluate complex private market strategies. When needed, plan fiduciaries may engage investment advisors, registered investment advisors, or other investment professionals.

Conduct thorough due diligence

Evaluating private fund investments requires careful due diligence.

Fiduciaries should assess how the investment fits within the broader investment management strategy, review liquidity provisions and access to underlying assets, understand valuation methods for private funds, and evaluate management fees, fee structures, and the experience of the investment manager, fund managers, and private fund managers.

Document the process

Documentation is essential to fiduciary oversight. Committees should record their analysis, decision rationale, and comparisons with public market alternatives. A well-documented fiduciary process helps demonstrate that plan fiduciaries acted prudently.

Establish ongoing monitoring

Oversight continues after implementation. Plan fiduciaries should regularly review performance, liquidity conditions, management fees, and any changes involving fund managers or the investment strategy.

Key Areas That Require Careful Review

When evaluating alternative assets in a defined contribution plan, fiduciaries must review several core areas to ensure investments align with operational requirements and fiduciary responsibilities while protecting plan participants.

Liquidity

Liquidity is critical in defined contribution plans. Investments must support participant transactions, rebalancing activity, and the daily operations of the DC plan.

Valuation

Many private market investments rely on appraisal-based pricing rather than continuous market valuations. Fiduciaries should understand how the value of underlying investments and underlying assets is determined and monitored.

Fees

Alternatives often involve higher fees than traditional public market strategies. Committees must determine whether management fees and other costs are reasonable relative to the investment’s complexity and services provided.

Manager selection

Performance dispersion among alternative asset managers can be significant. Careful evaluation of portfolio companies, governance practices, and the track record of private fund managers is essential when selecting an investment manager.

Keeping the Focus on Participants

Every decision within a fiduciary framework must ultimately serve the interests of plan participants.

Alternative investments may provide exposure to opportunities that individuals might not otherwise access through mutual funds or other public market alternatives. However, they also introduce complexity that requires strong governance and communication.

Clear disclosures and participant education help ensure these investments are understood within the broader design of retirement plans.

Bringing Structure to Complex Investment Decisions

Evaluating private equity and other private market opportunities often requires coordination across multiple advisors and investment structures.

At One Charles Private Wealth, our Circle of Care™ framework integrates investment management, financial planning, estate planning, and risk management to evaluate complex decisions within the full context of a client’s financial life.

We help clients assess:

Diversification across private market and traditional investment options
Governance, oversight, and due diligence processes
Management fees, manager selection, and advisor coordination
Alignment with long-term financial goals

If you want guidance evaluating private market opportunities or structuring your portfolio with greater coordination, connect with our team at One Charles Private Wealth to start the conversation.

Conclusion

Coordinating alternative investments within a fiduciary framework ultimately comes down to process. Fiduciaries must define objectives, evaluate structures, conduct due diligence, assess liquidity and fees, and maintain ongoing oversight.

Policy discussions may expand interest in alternative assets, but ERISA responsibilities remain unchanged.

For some retirement plans, alternatives may fit within professionally managed structures. For others, the prudent decision may be to wait.

What matters most is a disciplined, well-documented process focused on the long-term interests of plan participants.

Frequently Asked Questions

What does coordinating alternative investments within a fiduciary framework mean?

It means evaluating strategies such as private equity or other private market investments through a disciplined governance process. Plan fiduciaries must assess risks, structure, and fees while ensuring decisions align with ERISA duties and the interests of plan participants.

Can defined contribution plans include alternative investments?

Yes. Defined contribution plans may include alternatives, typically through professionally managed vehicles such as target date funds or managed accounts, which help maintain liquidity and oversight.

What should fiduciaries evaluate before adding alternatives to a retirement plan?

Fiduciaries should conduct due diligence on investment structure, liquidity, valuation methods, fees, and the experience of the investment manager, while ensuring the strategy aligns with plan objectives and participant needs.