Alternative Assets in DC Plans Require Effective Operational Strategy, says Northern Trust

As plan sponsors search for ways to find value while adding diversification among asset classes in their defined contribution (DC) plans, many have considered offering alternative assets as an investment option. Alternative assets provide the benefits of diversification and low correlation to traditional asset class performance. However, concerns around the scalability, liquidity, and valuation needs of DC plans have inhibited their use as a viable investment option.

In a new white paper, Adding Alternatives to DC Plans, Northern Trust explores the operational and plan structure options available to plan sponsors that wish to include alternative assets in their DC plans. Target date funds, combining defined benefit and DC assets into a unitized structure, and indexation are three possible solutions that are explored in the paper.

“Northern Trust focuses on working with clients to help them find the best solutions for their retirement plans,” said Pete Cherecwich, Head of Corporate & Institutional Services in the Americas at Northern Trust. “The key to increasing the mix of options plan sponsors offer is having a well-defined operational strategy that focuses on the needs of the plan participants.”

"As interest in including alternatives has increased, we are frequently asked by clients what the best methods are to deal with liquidity and valuation challenges,” said Tom Lauer, Defined Contribution Asset Servicing Consultant at Northern Trust. “We tell our clients that there are ways to structure their plans that allow them to take advantage of alternative assets. For example, some clients find it appropriate to integrate defined benefit and defined contribution plan assets in order to leverage scale and provide participants with access to alternatives.”

Defined Contribution Solutions at Northern Trust includes a team of investment, plan design and operations experts guided by a strategic vision that considers the perspectives of both plan sponsors and the ultimate beneficiaries, plan participants. Northern Trust's global custody unit and asset management teams work closely to provide comprehensive solutions including multi-manager unitization, integration of DB and DC plan investment pools, performance measurement and cross-border pooling. Northern Trust has approximately $280 billion in defined contribution assets under administration and approximately $120 billion in DC assets under management, as of June 30, 2015. More information can be found at www.northerntrust.com/dcsolutions.

About Northern Trust

Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has offices in the United States in 19 states and Washington, D.C., and 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2015, Northern Trust had assets under custody of US$6.2 trillion, and assets under management of US$946 billion. For more than 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit northerntrust.com or follow us on Twitter @NorthernTrust.

Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at http://www.northerntrust.com/disclosures.

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