How BlackRock and Goldman Sachs are bringing Wall Street’s hottest asset class to 401(k)s

Wall Street’s largest firms are leading the charge in democratizing access to alternative assets for individual investors, once reserved for the ultra-wealthy. BlackRock and Goldman Sachs are at the forefront of this movement, offering opportunities for retail investors to diversify their portfolios beyond traditional stocks, bonds, and cash.

Jon Diorio, head of alternatives for wealth at BlackRock, highlighted the rapid growth of the alternative market, attributing it to the shrinking public markets and a softening regulatory environment. Alternative assets include private equity, private credit, real estate, infrastructure, cryptocurrencies, and more. President Donald Trump’s recent executive order allowing alternative assets in 401(k) retirement accounts has sparked controversy, with the Biden administration opposing the idea.

While alternative assets can potentially enhance diversification and amplify returns over the long run, they also come with risks. These assets are not publicly traded, making them more difficult to value and less liquid. However, industry leaders like BlackRock and Goldman Sachs are working to educate investors about these risks and opportunities.

Marc Nachmann, head of the asset and wealth management division at Goldman, emphasized that investors can benefit from illiquidity in alternative assets, particularly those with longer time horizons, such as retirement savers. Goldman recently launched a private credit product for retirement plans, structured as a collective investment trust (CIT) to offer exposure to private investments.

Goldman’s foray into alternative assets aims to tap into the growing defined contribution market, providing access to private credit for millions of retirement savers. The new product generates fees for the company on the alternative assets that people invest in, offering a consistent source of revenue over time. This move expands Goldman’s asset and wealth management division, diversifying its revenue streams beyond investment banking.

BlackRock, on the other hand, is the largest asset management firm globally, offering a wide range of investment options, including mutual funds, ETFs, and alternative asset products. The company’s focus on managing alternatives reflects the complexity of these assets, allowing for higher fees compared to traditional investments.

Overall, the push into alternative assets by firms like BlackRock and Goldman Sachs not only benefits investors seeking diversified portfolios but also presents a significant revenue opportunity for the companies. By making alternative assets more accessible to individual investors, these firms are reshaping the landscape of wealth management and paving the way for a more inclusive Wall Street. BlackRock, a leading financial services firm, is poised for growth with its focus on alternative assets. TD Cowen analyst Bill Katz sees this move as a significant opportunity for the company, predicting that it will have a positive impact on their base fee rate and overall revenues. Jeff Marks, the Investing Club’s director of portfolio analysis, also emphasizes the benefits of alternatives over traditional index funds, which have become commoditized.

Wall Street firms like Apollo Global and State Street Global Advisors are following suit by offering alternative assets through various channels beyond retirement accounts. BlackRock, in particular, is expanding its reach in the wealth management sector, with a quarter of its revenues coming from this segment last year. The company has introduced private credit options in its model portfolios, making it easier for advisors to provide clients with exposure to private assets.

However, educating investors on the risk/reward dynamics of alternative investments is crucial. Recent examples like Blackstone’s real estate fund and Yieldstreet’s troubles highlight the importance of understanding the potential risks involved in these investments. While the availability of alternative assets is expected to grow in the coming years, investors must have a solid grasp of these products and their risk tolerance.

Despite the challenges, the trend of offering private assets to a wider clientele is likely to become more common in the future. Money managers are increasingly recognizing the demand for alternative investments among individual investors. As assets under management for alternative assets are projected to increase significantly over the next decade, the industry is expected to see a shift towards a more inclusive approach to offering these products.

In conclusion, BlackRock’s focus on alternative assets is a strategic move that is expected to drive growth and revenue for the company. With a greater emphasis on educating investors and offering a diverse range of private assets, financial firms are positioning themselves to meet the evolving needs of their clients. As the market for alternative investments continues to expand, investors must be well-informed and prepared to navigate the risks and rewards associated with these products.