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Private alternatives coming to Vantagepoint’s target-date and target-risk funds

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Vantagepoint has started the process of adding private alternative assets in its target-date and target-risk funds, becoming one of the first funds of its kind to help give defined contribution retirement plans access to private equity, private real estate, and other relatively illiquid investments.

The rise of defined contribution plans continues to shift the burden of investing for retirement from institutions to individuals. While defined benefit (DB) plans and other institutional investors have enjoyed the benefits of alternatives in enhancing risk-adjusted performance, defined contribution (DC) plans have not adopted private alternatives as investment options due to various liquidity and operational issues.

“We are taking the first steps to provide access to a diversified portfolio of private alternatives for people who otherwise would not be able to benefit from these investments. We’re doing it in a daily valued fund, so we’re not restricting liquidity,” says Wayne Wicker, CIO of Vantagepoint Investment Advisers, LLC. “It will be a multi-year process to build our target exposure. We believe that adding alternatives to our target-date and target-risk funds will offer significant value over the long term, because alternative assets like private equity and real estate have different characteristics than traditional assets.  By including them in our funds, over time we can potentially help increase risk-adjusted returns and aid participants’ efforts to enhance their retirement security,” he adds.

Alternatives often have different properties than traditional stocks and bonds, enhancing portfolio diversification and potentially improving risk-adjusted returns. As the allocation to diversified alternatives in Vantagepoint’s Milestone Funds (target date) and Model Portfolio Funds (target risk) is built over a multi-year implementation schedule, investors will be able to take advantage of the potential benefits of private alternative asset classes, such as illiquidity premiums and an expanded investment opportunity set. 

In recognition of the complex and sophisticated nature, and the unique risks of private alternative assets, Vantagepoint is taking a measured approach to introducing the asset class to its target-date and target-risk funds. The implementation will occur over several years and the company currently expects that private alternative investments will comprise less than 5 per cent of the total assets of any single target-date or target-risk fund.

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