Institutional investors have long recognized the merits of alternative asset classes, which not only provide diversification, but also have the potential to enhance long-term returns and hedge against the impact of inflation. However, employee- directed defined contribution plans have been slow to adopt these strategies. We believe that participants in traditional stock-and-bond defined contribution plans would be well served to consider adding liquid real assets to their mix, taking advantage of the increasing availability of mutual funds that invest in alternative strategies.

For the plan sponsor who walks a fine line between 1) an investment menu that encourages sensible asset-class diversification, and 2) an overload of choices that may promote poor participant decisions, we advocate for a single real assets strategy that invests in multiple real asset categories and is actively managed. Here we touch on three common-sense objectives for the defined contribution pla