Financial Analysts Journal 18 July 2022 Volume 78 Issue 4
Should Defined Contribution Plans Include Private Equity Investments?
Private equity fund investments offer enticing benefits for defined-contribution plans. This paper evaluates the pros and cons and finds that the required liquidity backstops may bring increased fees or even disrupt the private fund model.
This paper evaluates the pros and cons of including private equity fund investments in defined contribution plans. Potential benefits include higher returns and improved diversification as well as a relatively safe method for accessing investments previously only available to institutions and the very wealthy. Despite these enticing benefits, they need to be weighed against potential challenges and costs that may arise from creating this broader access to private funds. The complicated structure and uncertainty around the mechanism to provide required liquidity backstops may bring increased fees or even disrupt the private fund model.
About the Authors
Gregory W. Brown is a Sarah Graham Kenan Distinguished Professor at the UNC Kenan-Flagler Business School, Chapel Hill, NC.
Keith J. Crouch, CFA, is a director at Burgiss.
Andra Ghent is a professor of finance at the David Eccles School of Business, University of Utah.
Robert S. Harris is a C. Stewart Sheppard Professor at the Darden School of Business, University of Virginia.
Yael V. Hochberg is a Ralph S. O’Connor Professor in Entrepreneurship and professor of finance at Rice University, Houston, TX.
Tim Jenkinson is a professor of finance at Said Business School, University of Oxford.
Steven N. Kaplan is a Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business.
Richard Maxwell is a PhD candidate at the UNC Kenan-Flagler Business School, Chapel Hill, NC.
David T. Robinson is a James and Gail Vander Weide Professor of Finance at the Fuqua School of Business, Duke University, Durham, NC.