86% say diversification is a “key guardrail” for managing risk
BOSTON, Mass., December 17, 2025 – As Americans prepare for an unprecedented demographic shift in which the 65-and-over population is expected to nearly double to 88 million by 2050,1 a new HarbourVest Partners survey of 200 senior decision-makers at U.S. defined contribution plans captures sentiment towards private markets investments in retirement portfolios.
The findings show that plan sponsors see an opportunity for private markets investments to improve retirement outcomes, with diversification viewed as a key risk guardrail. Many plan sponsors also noted education and communication with participants as an area of concern. Specifically, 94% said they are confident that private market investments can contribute positively, 86% said that diversification is a key guardrail for managing risk and 34% said that participant understanding was among their greatest concerns.2
Managing Risk Through Diversification
While there is an overwhelming belief in the potential benefits to private markets investments, plan sponsors believe that diversification is important for providing adequate risk safeguards.
“Many investors don’t realize that many private markets funds invest in a narrow part of the market. To manage risk and provide adequate guardrails, plan sponsors should leverage the same mutual fund playbook which has made stocks and bonds the center of retirement investing,” said John Toomey, CEO of HarbourVest Partners. “Diversification across different managers, investment styles, company size and other key dimensions is a common sense, demonstrated way to reduce risk in public markets investing and private markets investing is no different.”
Plan Sponsors Optimistic, but Focused on Education, Fiduciary Duties, and Fees
Alongside their optimism, plan sponsors recognize the importance of additional education as they consider private markets in DC plans. 91% said their organization’s in-house expertise is prepared to evaluate, select, and manage private market investments within DC plans. At the same time, respondents highlighted several areas where additional support would be valuable. When asked where they would most need education or guidance, the top two areas identified were understanding the regulatory environment and fiduciary duties, followed closely by portfolio-construction approaches for private markets.
When asked about their greatest concerns regarding the inclusion of private markets within DC plans, respondents ranked cost, fees, and transparency as their top concern, followed by participant communication and understanding. These findings point to a desire not only for robust investment solutions, but also for clear disclosures and communication to help participants make informed decisions.
Plan Sponsors Underestimate Private Market Concentration Risk
While plan sponsors overwhelmingly agree that diversification is key to managing risk, their definition of diversification at the asset class level may need updating given the wide dispersion of returns in private markets as compared to public markets. 99% of sponsors said that they would consider a fund with less than 100 underlying assets to be diversified. However, HarbourVest data shows that a private equity fund requires 200 or more underlying holdings to achieve full diversification.3
The study results also show that plan sponsors may be underestimating the concentration risk of the typical private equity drawdown fund. Less than 20% of respondents correctly responded that the average private equity drawdown fund can contain fewer than 30.4
HarbourVest’s findings highlight the opportunities for plan sponsors to learn more about risks and portfolio construction as they consider private markets investments in their plans.