What the Push for Alts in Retail Channels Means for Institutional Investors

As the asset management industry increasingly targets retail, wealth and defined contribution retirement channels to sell alternative investment products, institutional investors are assessing what the influx of retail capital means for them.

According to a report from Deloitte, “alternative funds, including those targeted to retail investors, could grow by more than [a] 50% [compound annual growth rate] to as much as $4.1 trillion by the end of the decade,” the report stated. “Taken together, the private market segment is likely to benefit if even one of these developments occurs: tariff stability, broader DC plan access, or deeper retail participation.”

Quest for Sources of Capital

As fundraising for alternative asset classes like private equity has declined—$616 billion in 2025, down from a peak of $1.04 trillion in 2021, according to McKinsey & Co.—managers have looked to raise capital outside of their traditional limited partner investor base.

“Asset managers need to find new ways to broaden their investor base, and tapping into the large pool of capital from retail base is an attractive option, particularly given that expanding retail access to the alternative investments is top-of-mind under the current administration,” says Michael Didiuk, a partner in law firm Katten Muchin Rosenman LLP’s financial markets and funds practice. “Asset managers that have traditionally only serviced institutional investors or [high-net-worth] investors through private vehicles or separate accounts will need to evaluate their existing capabilities and identify areas that need to be outsourced or built in-house—[such as] distribution, education, legal capabilities, marketing—in order to efficiently and effectively tap this new pool of capital.”

Still, with regulatory guidance still pending, it remains very early in the process of adopting alternative investments in retail, wealth and DC retirement channels. According to the 2026 Defined Contribution Plan Benchmarking report from CIO’s sister publication PLANSPONSOR, only 2.9% of DC plans offer alternative asset classes to plan participants.

Many industry observers note that the alternative investment products available to institutional investors may not fit the needs of retail investors due to high fees, long lock-up periods, high complexity and the products’ illiquidity.

“As regulators move to open private markets to a wider investor base, the question is not whether retail access should be allowed, but whether the structure of these markets can support it,” wrote CFA Institute author Sebastien Canderle in a November 2025 blog post. “With fee structures built for scale and governance mechanisms that provide limited accountability, extending the model to smaller investors risks amplifying those weaknesses rather than democratizing opportunity.”

The demand for capital is entrenched, says Arnim Holzer, a global macro strategist and client portfolio manager at Easterly EAB, who gives the example of hundreds of billions of dollars being raised for investment in the development of artificial intelligence.

“It’s not a surprise to see the capital-raisers are trying to dig into other pockets of liquidity,” Holzer says. “The issue is: Is this the right place? Is this the right product? Are these [investors] sophisticated enough? And can they take the kind of risk that these products have?”

Other investors have said that the increase in retail and DC plan investors in private assets could also create liquidity for institutional investors seeking exits from positions they have held for some time.

Do Institutional Investors Approve?

According to a January report from Coller Capital, 61% of institutional investors said they were not comfortable with private markets managers forming partnerships with banks and larger asset managers to better reach wealth and retail clients, as “this raises concerns about the influence of banks and larger asset managers on the strategies of private market managers.”

The same report stated that 42% of institutional investors did not agree that increasing retail capital in private markets would enhance transparency and build broader trust in the asset class—with 7% strongly agreeing with the sentiment and 51% somewhat agreeing.

“Institutional investors generally prefer investing alongside like-minded, long-term capital. However, retail participation isn’t necessarily a dealbreaker,” says Aaron Filbeck, a managing director at CAIA. “That said, the vehicles that large institutions typically access don’t naturally lend themselves to retail distribution.”

An October 2025 white paper from the Institutional Limited Partners Association highlighted some of the challenges that could arise for LPs as a result of an influx of retail capital into alternative strategies. These include the possibility that opportunities for LPs in co-investments could decrease, as retail capital could pay higher fees for such investments.

The ILPA report found that the size caps of funds could also become less meaningful for LPs if the general partners have access to “potentially unlimited” co-investment capital to invest alongside an institutional fund. Other potential impacts for cited by the ILPA include:

• Investment decisions related to individual deals (timing of investments and exits; size; capital structure placement) may be influenced by the needs of the retail vehicle, which may conflict with the interests of the institutional fund;
• Depending on personnel allocation to the retail vehicle, general partners’ time and attention may be diverted away from the institutional fund to support the greater volume of deal flow require;
• Differentiated incentives—such as lower hurdle rate and computation of carry based on realized and unrealized NAV—could influence GP decisionmaking in favor of retail vehicles;
• Greater deal flow requirements for retail funds may test GPs’ investment discipline or impact on the fund’s long-term investment strategy; and
• Certain fees, such as warehousing fees and broken deal fees, can potentially be charged only to the institutional fund; moreover, certain compliance costs associated with retail vehicles may be shared across all funds.

“A more useful framing might be to ask whether institutional investors are willing to participate in retail-oriented products,” Filbeck says. “So far, the answer appears to be yes, but selectively—either during periods of market dislocation or as a way to efficiently build exposure while scaling into longer-term institutional positions.”

For many institutions, retail capital can play a tactical role.

“Quite frankly, it’s another liquidity source, so if we’re looking to sell assets, we might do a little bit better there,” says Andrew Junkin, CIO of the Virginia Retirement System, which allocates 15.8% of its assets to private equity, 15.1% to credit strategies and 1.7% to private investment partnerships.