Understanding the 401(k) Market – Eric Mogelof, KKR - Capital Allocators – Inside the Institutional Investment Industry Recap

Podcast: Capital Allocators – Inside the Institutional Investment Industry

Published: 2025-10-09

Duration: 28 min

Summary

In this episode, Eric Mogelof from KKR discusses the future of private market allocations in retirement plans, emphasizing that significant changes will take time. He highlights the current landscape and the gradual shift towards including alternatives in 401(k) plans.

What Happened

Ted Saides introduces the episode by noting the growing interest in how retirement accounts are beginning to incorporate alternative investments, particularly in light of a recent executive order. He brings back Eric Mogelof, the head of Global Client Solutions at KKR, to delve deeper into the retirement market, which holds over $40 trillion in assets across defined benefit, defined contribution, and IRA plans. Mogelof points out that the defined contribution market is the fastest growing segment, now representing approximately $12.5 trillion of the total retirement market.

Mogelof explains the dynamics of investment within these retirement accounts, particularly focusing on IRAs and defined benefit plans. He mentions that while the IRA market has traditionally leaned heavily towards equities, there is now a noticeable uptick in private market allocations. In the context of defined benefit plans, Mogelof highlights the historical allocation towards private markets, especially in public pension plans, which maintain significant investments in both public and private equities. He notes a shift in corporate defined benefit plans towards fixed income over the past two decades, influenced by accounting changes that have altered investment strategies.

Key Insights

• The defined contribution market is increasingly becoming the primary vehicle for retirement savings.
• Private market allocations in IRAs are growing but still represent only a small fraction of total investments.
• Defined benefit plans have historically had significant allocations to private markets, particularly in public pension plans.
• The transition to private market allocations in retirement plans will take years and won't happen overnight.

Key Questions Answered

What is the current landscape of retirement accounts in the U.S.?

Eric Mogelof outlines that the U.S. retirement market comprises over $40 trillion in assets distributed across defined benefit (DB), defined contribution (DC), and IRA accounts. He breaks it down into three main categories: DB plans account for about 35%, DC plans for approximately $12.5 trillion or 30%, and IRAs also make up around 35%. Notably, the defined contribution market is the fastest growing segment, with more than 100 million Americans participating.

How are private markets being incorporated into IRAs?

Mogelof explains that the IRA market, which traditionally has skewed towards equities, is beginning to include private market investments. While historically dominated by public equity and fixed income, there is a growing trend of allocating a small percentage to private equity, private credit, and real estate within IRAs. The current allocations to private markets are estimated at around two to five percent, but this is expected to grow rapidly.

What are the differences between public and corporate defined benefit plans?

In the episode, Mogelof describes public defined benefit plans as typically having a higher allocation to private markets, often exceeding 30%. These include government pensions from state or local municipalities. Conversely, corporate defined benefit plans have shifted over the past two decades, moving more assets into fixed income. This change was influenced by accounting regulations that impacted how companies fund their pension obligations.

What is the future outlook for private markets in retirement plans?

Mogelof expresses optimism about the future, stating that in a decade, significant allocations to private markets in defined contribution plans will become commonplace. However, he notes that the transition won't happen quickly; it will take years for private market allocations to gain widespread adoption through managed accounts and custom target date funds.

What challenges are faced in adopting alternatives in 401(k) plans?

Mogelof acknowledges that the adoption of alternative investments in retirement plans is complex and will take time. He emphasizes that while the off-the-shelf alternatives may take longer to gain traction, managed accounts and custom solutions are paving the way for initial allocations. The decision-making process within these structures is critical, as it requires a significant shift in thinking among plan sponsors and participants.