Podcast Summary: Capital Allocators EP.464

Episode Title: Understanding the 401(k) Market – Eric Mogelof, KKR
Host: Ted Seides
Guest: Eric Mogelof, Head of Global Client Solutions, KKR
Date: October 9, 2025

Overview

This episode focuses on the future of private market allocations in U.S. retirement accounts, especially 401(k)s (Defined Contribution, or DC plans). Ted Seides interviews Eric Mogelof of KKR to deconstruct the complex landscape of the retirement market. They discuss how capital currently flows in and out, the structure and evolution of asset allocation across IRAs, Defined Benefit (DB), and DC plans, and the practical and structural challenges to incorporating alternatives such as private equity and private credit into 401(k)s. Eric provides a clear-eyed expectation for the pace and route of adoption, with insights into regulatory impacts, decision-making processes, and the role of target date funds.

Key Discussion Points & Insights

1. The Structure and Size of U.S. Retirement Markets

• The U.S. retirement market is over $40 trillion, split roughly as:
  • Defined Benefit (DB): ~35%
  • Defined Contribution (DC/401k): ~30%, $12.5 trillion, and fastest-growing
  • IRAs: ~35%
• "More than 100 million Americans have a defined contribution balance. It really is becoming the primary vehicle for people to save for retirement." — Eric Mogelof (06:13)

2. Asset Allocation in IRAs and DB Plans

• IRA Market: Follows broader private wealth trends, traditionally heavy on public equity (60-80%). Private market allocations are small but "growing very quickly," with private equity, credit, infrastructure, and real estate represented.
  • "I would say a couple of percent, 2, 3, 5?... But growing very quickly." (07:30)
• DB Market:
  • Has long included significant private market allocations.
  • Public DB (state/local) plans: often over 30% in both public and private equities.
  • Corporate DB plans have shifted toward fixed income due to accounting changes but still hold 20%+ in alternatives.
  • "Corporate DB used to look that way. But over the last 20 years, more... are getting allocated to fixed income... but still 20 plus percent in alternatives and private markets." (08:50)

3. The DC/401(k) System: Evolution and Today’s Landscape

• History: Shift from company stock to greater diversification, with regulatory changes in early 2000s enabling the rise of target date and target risk funds.
• Current Allocation: Vast majority still in public markets; "very little money in D.C. today that's in alternatives or private markets, small amounts, very bespoke plans." (11:19)
• Target Date Funds (TDFs):
  • Structurally dominant; north of 60% of new DC flows go into TDFs.
  • About 40% of DC assets in some “investment solution,” such as TDFs, custom funds, or managed accounts.

4. Three Paths for Private Markets’ Entry into DC Plans

• (1) Off-the-Shelf Target Date Funds:
  • Dominated by six asset managers: Vanguard, Fidelity, BlackRock, State Street, T. Rowe, Capital Group (~85% of assets).
  • Chosen largely by non-professional committees (HR/finance), with low fees the top historical selection criterion, partly due to litigation risk.
  • Adopting alternatives here would require creating new TDF series rather than altering existing ones: “It’s hard to imagine... someone is going to unilaterally change that strategy without you opining on it.” (16:04)
• (2) Custom Target Date Funds:
  • Created by large companies with professional investment teams; likely to pioneer private markets inclusion. (20:22)
  • Faster adoption possible because these committees understand private markets’ net-of-fee value.
• (3) Managed Accounts:
  • Custom advice, sometimes via algorithmic “financial engines.”
  • Likelier near-term vehicle for private markets, as advisors and recordkeepers have more flexibility.

5. Structural and Practical Barriers

• Liquidity and Daily Pricing:
  • DC systems built for daily liquidity and valuation; private markets are illiquid and valued infrequently.
  • Solutions include “liquidity sleeves” in TDFs and evolving valuation practices (now monthly or, for some private credit, daily).
  • “Either the chassis in 401 needs to change... or, what’s more likely is... we... work on daily pricing all of the various different private markets.” (22:16)
• Adoption Pace:
  • Most people underestimate the complexity and decision hurdles, wrongly expecting swift mass movement.
  • “Most people don’t understand the decision making processes ... It is going to take one by one, engaging with plan sponsors...” (23:24)

6. Where Change Is Happening First (and Where It Isn’t)

• Managed accounts and “pooled employer plans” are already adding evergreen private market vehicles.
• Custom TDFs are beginning to experiment.
• Off-the-shelf funds will be slowest, as organizations need education and regulatory certainty.
• New DOL statements and potential safe harbors may help, but education is a drawn-out process. (24:19)

7. Future Outlook for Private Markets in DC Plans

• “It’s not an if, it’s really a when. There’s no doubt in my mind... we will see very meaningful allocations within that D.C. market to private markets... It will be a hockey stick, but it’s not going to be a hockey stick in the next couple of months or a couple of quarters. It really is going to take years for this to play out.” (26:41)
• Near-term (3–5 years): Most growth via managed accounts and custom funds; off-the-shelf TDF shift will be slowest.

8. Which Private Asset Classes First?

• Managed accounts: All private asset classes will be available quickly.
• Custom TDFs: Expect private credit to be first (thanks to easier liquidity/daily pricing), with private equity and real estate following. (27:41)

9. Market Impact and Manager Skill

• As more companies stay private longer, the investible universe expands.
• Selection skill will distinguish performance as capital surges in:
  • “The difference between a top quartile manager and a fourth quartile manager could be a couple thousand basis points.” (28:56)

Notable Quotes & Memorable Moments

• “More than 100 million Americans have a defined contribution balance. And it really is becoming the primary vehicle for people to save for retirement.” — Eric Mogelof (06:13)
• “There is very little money in D.C. today that’s in alternatives or private markets, small amounts... virtually all of the allocations today are sitting in public markets.” — Eric Mogelof (11:19)
• “Most people don’t understand the decision making processes around how a target date fund gets on a platform... there are real barriers that have to be overcome. And so that’s why I don’t see this as a massive revolution. I see this as a normal natural evolution.” — Eric Mogelof (23:24)
• “It’s not an if, it’s really a when... There’s no doubt in my mind in a decade from now we will see very meaningful allocations within that D.C. market to private markets... But it’s not going to be a hockey stick in the next couple of months or a couple of quarters. It really is going to take years for this to play out.” — Eric Mogelof (26:41)
• “Manager really matters. The difference between a top quartile manager and a fourth quartile manager could be a couple thousand basis points.” — Eric Mogelof (28:56)

Timestamps for Important Segments

• Retirement market structure and size: 05:27–06:35
• Asset allocation in IRAs/DBs: 06:42–09:15
• DC Plan history and evolution: 09:20–11:19
• Three routes to private markets in DC: 11:54–14:53
• Major target date fund providers & fee orientation: 15:03–16:38
• Barriers to changing TDF allocations: 16:47–19:14
• Net inflows/outflows to DC and IRAs: 19:32–20:14
• Custom funds and managed accounts as leading edge: 20:22–21:14, 24:19
• Liquidity/daily pricing challenges: 21:14–23:14
• Misconceptions about speed and process: 23:14–24:17
• Where adoption is occurring: 24:17–26:12
• Long-term outlook (“it’s not an if, it’s a when”): 26:41–27:32
• Which private asset classes first: 27:41–28:23
• Impact on managers and industry: 28:23–29:26

Tone and Takeaways

Eric Mogelof delivers a frank, well-structured assessment of what's driving (and slowing) the inclusion of private markets in 401(k) plans. The conversation is rooted in practical detail and industry structure, with a measured optimism about eventual large-scale adoption. For investors, industry professionals, and retirement savers, the episode demystifies the real hurdles and the plausible timelines—and highlights the critical role of governance, regulation, and education in this quiet evolution of American retirement funding.