How BlackRock and Goldman Sachs are bringing Wall Street's hottest asset class to 401(k)s
HS 26/08/2025
Wall Street’s largest firms are championing a new cause. They are bringing alternative assets — once reserved for the ultra-wealthy — to the portfolios of individual investors. Chief among the proponents are BlackRock and Goldman Sachs. But, as is usually the case in investing, the potential of greater returns comes at a risk. “The alternative market is becoming less alternative,” said Jon Diorio, head of alternatives for wealth at asset management giant BlackRock. Alternatives are assets outside of stocks, bonds, and cash — including private equity, private credit, real estate, infrastructure, cryptocurrencies, and more. “It’s growing very rapidly as public markets are shrinking,” Diorio told CNBC in a recent interview. Interest has been fueled by shrinking public market opportunities and a softening regulatory environment. President Donald Trump signed an executive order earlier this month that paved the way for alternative assets in 401(k) retirement accounts — an idea vehemently opposed by the Biden administration. Diorio, who also leads product strategy for BlackRock’s U.S. wealth advisory business, said that giving more investors exposure to alternatives — which have traditionally been part of the portfolios of ultra high net-worth individuals, hedge funds, and pension funds — can improve returns over the long run. “In some cases, you can get enhanced diversification [and] amplify return streams,” he added. Giving individual investors the same access to different asset classes as the pros has been championed as further democratizing Wall Street. However, it also comes with its own risks. These assets are not publicly traded, which means they are more difficult to value and less liquid. BlackRock’s Diorio and peers at other major financial firms are acutely aware of this and strive to make sure investors are, too, as they challenge the decades-old focus on the traditional retail portfolio split of 60% stocks and 40% bonds. Marc Nachmann, head of the asset and wealth management division at Goldman, explained the risk dynamic in a recent CNBC interview , noting that “you actually get paid for the fact that [these] are illiquid and [that] you can’t take your money out all the time.” The inclusion of alternative assets, he said, is well-suited for investors with longer-time horizons or those who do not need to access their money right away, such as retirement savers. “Think about a 401(k). When you’re 24 years old and you graduate from college and you start your first job and you start putting your first real dollars into a 401(k) fund, those are exactly the dollars that you should put into something that pays you for being locked up for a period of time, for being illiquid. Because at 24, you’re not going to access that liquidity for decades,” Nachmann said. So, it’s no wonder the defined-contribution market has been a key part of Wall Street’s push to make the opaque asset class more accessible. In July, Goldman’s asset-management arm announced a private credit product for retirement plans. The new vehicle is structured to offer exposure to a diverse mix of private investments, which includes North American and European direct lending. The product is set up as a collective investment trust (CIT), which is designed for defined-contribution plans such as 401(k)s. Great Gray Trust, a private equity-backed CIT specialist, and BlackRock will help support these offerings. It’s the natural next step for Goldman in mixing public and private markets, according to Nachmann. After all, many large pension funds are already invested in alternatives. Goldman is starting the effort with target date funds, which manage the risk/reward using an investor’s estimated retirement year to strategically adjust risk allocations. These funds usually start with higher allocations to stocks, but as investors approach retirement, exposure becomes more conservative to protect the nest egg. Before the Goldman announcement, BlackRock was tapped to underpin Great Gray’s first target date retirement fund, which allocates across both public and private markets. BlackRock will help to provide a long-term custom investment strategy that includes private credit and private equity exposure as well. While potentially giving investors a shot at higher returns, the push into alternatives also offers a financial windfall for Goldman and BlackRock over time. The newly announced Goldman product generates fees for the company on the alternative assets that people invest in. The fee structure, expected to be around 1% of assets, will be a consistent source of revenue for Goldman that grows as the effort gains traction and more retirement plans adopt it. The vehicle gives Goldman more room to expand its asset and wealth management division, its second largest by revenue, as well. It does this by tapping into the growing defined contribution market, which already holds trillions and trillions of dollars in assets. By making private credit more accessible to millions of retirement savers through products like target date funds, Goldman is tapping into a wider client base that was once largely limited to institutions and the extremely wealthy. To be sure, Goldman’s crown jewel has long been its investment banking division. However, these revenue streams from advising on initial public offerings (IPOs), as well as mergers and acquisitions (M & A), can be unpredictable depending on the economic backdrop and Wall Street’s dealmaking appetite. Conversely, a lot of revenue streams from asset and wealth management businesses can be recurring as they are a percentage of a firm’s assets under management, which tends to be more stable. The promise of diversifying revenues is a key reason why Goldman and other major financial firms are growing their wealth management divisions. BlackRock’s overall business mix differs from Goldman’s, however, because it does not engage in investment banking. BlackRock is the biggest asset management firm in the world, providing all kinds of investment options — including mutual funds and exchange-traded funds (ETFs), and alternative asset products, just to name a few. Money managers like BlackRock and Goldman’s wealth arm can also typically charge a higher amount to manage alternatives because they’re more complex. “From the economic impact of it, it opens up a massive opportunity for growth, and it should be accretive to their base fee rate,” TD Cowen analyst Bill Katz said of BlackRock, in particular. “It should be very good for their revenues.” We agree. “For BlackRock, alternatives generate higher fees than traditional index funds, which have become commoditized and with expense ratios essentially in a race to the bottom,” said Jeff Marks, the Investing Club’s director of portfolio analysis. Wall Street firms are making alternative assets available through more than just the retirement channel. Apollo Global and State Street Global Advisors , for example, have developed a private-credit ETF that debuted on the New York Stock Exchange back in February. BlackRock is making strides beyond retirement too, specifically within its wealth business, which accounted for a quarter of its overall revenues last year. In March, management unveiled plans to make it easier for advisors to offer their clients exposure to private assets. BlackRock included private credit into its model portfolios business, which Diorio said helps take out the “cumbersome” and “less convenient” parts of allocating to the market. Diorio explained that the announcement addresses a barrier to entry for many investors in private markets because a lot of them invest based on the product itself, rather than considering the entirety of their portfolio. “What I mean by that is somebody would buy a potential non-traded [business development company] private credit fund because it yields 10%, not because it improves the risk-adjusted returns in the portfolio,” he added. “They’re typically choosing it on its product basis, [meaning] who’s the manager, what’s the narrative of the product, and how much does it yield. They’re thinking about it less from a portfolio construction standpoint.” Now, advisors using BlackRock’s custom model portfolios can offer clients across the wealth spectrum different ones to choose from, rather than going through the arduous process of selecting individual investments themselves. Private assets account for 15% of the investments in these portfolios on average, according to BlackRock. “We are now delivering basically a whole portfolio where the client can come in and actually choose,” he said. “We have a private equity fund that goes into the equity sleeve of that portfolio. We have a private credit fund that fits into the fixed income sleeve. We make the integration of that easier.” But education around the risk/reward dynamic of investing in alternatives is paramount. Everyone wants to avoid what happened when Blackstone offered a wider client base exposure to alternatives in years past. In 2017, Blackstone rolled out a real-estate fund, which has commonly been geared towards institutions like pension funds, to individual investors for an opportunity to own a piece of assets like warehouses, data centers, and apartment buildings. The fund’s net asset value ballooned and performed extremely well when interest rates were low, but it turned a corner in 2022 once the Federal Reserve started aggressively hiking rates from the near 0% levels of the Covid pandemic-era. Real estate prices fell. Unnerved investors wanted to pull their money out in large swaths as a result, causing management to temporarily limit withdrawals. Blackstone, however, has consistently denied any wrongdoing in the matter. Katz said the debacle provided a “painful” yet “good learning experience” for Blackstone and its peers moving forward. “That created a lot of pressure on Blackstone and the industry at large around this whole construct,” Katz added. “[But], I think the investment community now is far more understanding. The education process is far better as well.” CNBC reporter Hugh Son highlighted a more recent example last week amid the troubles facing startup Yieldstreet, whose stated mission is to democratize access to alternative assets such as real estate, litigation proceeds, and private credit. Yieldstreet told CNBC that some of its real estate funds were “significantly impacted” by rising interest rates and market conditions. According to clients who spoke to CNBC, these investments were much riskier than they thought, leading to huge losses in their portfolios. “If you were to start adding things that are not publicly traded, like private equity, private credit, private real estate, a lot of these things are not marked to market,” said Sam Stovall, chief investment strategist at CFRA Research. “You don’t see on a daily basis what they’re worth. When you get your quarterly review statements from your 401(k) administrator, it might be misleading because it could be a quarter behind.” Stovall told CNBC that “having alts available is good, but requiring the investor to fully understand them and their [risk tolerance] is very, very important.” Regardless of the risks, this trend is not expected to die out anytime soon. In fact, Stovall expects the assets under management for alternative assets to “grow dramatically” over the next ten years as individual investors increase their exposure. For his part, Katz described money managers’ offering private assets to more clientele as “more commonplace than not” in the future. (Jim Cramer’s Charitable Trust is long GS, BLK. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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