Press

Recordkeepers are in a tight spot in the retirement industry.

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It is creating tension in the industry, according to Mike Contorno, principal in and head of defined contribution vendor management at NEPC, an investment consulting firm which does not operate under this business model.

“These issues have become much more prominent in discussions around provider selection and long-term strategy,” Contorno says.

This trend’s impact on day-to-day provider selection remains to be seen, but as consolidation continues and as firms seek greater scale, Contorno says revenue opportunities tied to participant assets and wealth management are becoming increasingly important factors in long-term partnership strategies.

He adds that the most tangible impact is in request-for-proposal pricing: Firms that generate significant revenue from participant assets, rollovers or wealth management services may have greater flexibility to reduce or even waive consulting fees. That is why full disclosure of all related revenue streams would allow plan sponsors a more transparent comparison of potential partners.

“Greater transparency around these revenue streams would help plan sponsors better understand the economic incentives involved and evaluate potential misalignment of interests when selecting a provider,” Contorno says.

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Small-cap equities are in the midst of a revival, leading U.S. public pension funds to take a closer look at their active managers that have not kept up with benchmark performance, industry experts say.

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Nedelina (Nina) Petkova, principal and head of marketable equity research at NEPC, said despite the Russell 2000 index’s double-digit gains, lower quality, higher beta and momentum-oriented stocks drove that strong performance.

“On the active manager side, there’s always a preference for quality, profitability, and downside risk discipline, so I think that’s really important as a backdrop,” said Petkova.

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“I think when we look back through history, quality often trails large market rallies. We saw something similar back in 2021 and it often comes back in favor shortly thereafter,” Petkova said.

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“Many of the stocks that are responsible for the majority of these returns have been a specific subset, and many of these names, in particular, have since exited the small-cap index with the latest June reconstitution,” Petkova said.

Going forward, the more frequent reconstitutions will impact the dynamics of the small-cap universe, and Petkova said she sees this as a positive.

“The problem was that rising volatility and an increase in the (rapidity) of winners and losers have led to index style drift, and the move to reconstitutions twice per year should level the playing fields and should help indices stay more aligned with their intended exposures,” Petkova said.

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GPs are increasingly using co-investments to strengthen relationships with LPs, tapping investors’ industry expertise and networks.

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Meanwhile at NEPC, while demand for co-investments has remained relatively consistent, the Hightower-owned advisory firm’s head of private equity investments Josh Beers sees increased interest in large private technology companies thanks to artificial intelligence, though he dismissed a lot of that as headline chasing and FOMO.

“Overall demand for co-investing has largely centered on fee-free exposure and, in some cases, shorter hold periods,” Beers told II in an email. “The increased curiosity around technology names has been driven primarily by headlines and a broader fear of missing out.”

Beers added that allocators can also use co-investments to help diversify their portfolios beyond listed and private companies in tech and AI.”

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Active U.S. fixed income still dominates the asset class, but passive strategies are steadily gaining ground in defined contribution plans as sponsors add more index options, consultants say.

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The growth of passive fixed income has been centered on investment options offered in defined contribution plans and is about choice rather than replacement, said Mikaylee O’Connor, partner and DC team leader at investment consultant NEPC, in an interview.

“The percentage of plans offering both active and passive fixed income has increased meaningfully, “ O’Connor said. Five years ago, 59% of the consultant’s DC plan clients offered both active and passive options and now 84% of those clients offer both, O’Connor said.

“Most of that was the addition of passive fixed income,” she said. “So, what that means is sponsors are building mirrored investment menus, so that participants can then choose between active and passive.”

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NEPC’s O’Connor also said another structural force supporting more assets moving into passive fixed income over the past five years is fairly tight performance dispersion.

“If you look at over the last five years, the return spread between the top and the bottom quartile managers within core fixed income has been relatively narrow, so it’s making right essentially harder for active managers to differentiate themselves after fees,” O’Connor said.

This makes passive fixed income an “effective building block,” providing very low fees and similar performance.

“I would say that the difference between core and core plus is wider, but not meaningfully, compared to what you see in the U.S. equity or international equity space,” she said.

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As family offices deepen their exposure to private markets, many are discovering that access alone is no longer sufficient to drive outcomes. . . Karen Harding, partner and private wealth team leader at NEPC, works closely with family offices navigating these challenges and advises on building more resilient, institutional-quality private markets programs.

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CM: How has the current distribution slowdown disrupted traditional capital recycling assumptions for private equity and credit portfolios?

KH: Historically, many private markets programs relied on a relatively smooth cycle of distributions to fund new commitments, but that assumption has been disrupted as distributions have slowed.

The result is that capital recycling is no longer as dependable as it once was. Family offices are adapting by rethinking pacing or slowing commitments, or by looking to alternative funding sources, such as liquid assets or credit facilities, to ensure capital calls can still be made in the absence of distributions.

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CM: For families that historically relied on relationships or brand to choose managers, what first steps do you suggest to move toward a more disciplined, repeatable process?

KH: The transition is less about replacing relationships and more about formalizing decision-making around them.

The first step is to define clear evaluation criteria: what constitutes a strong manager, how strategies fit within the broader portfolio, and how success is measured across cycles. From there, the focus shifts to building a repeatable process that applies those standards consistently.

A thoughtful, consistent approach to manager selection is one of the most important drivers of long-term success in private markets.

Shifts coming at the portfolio construction and market levels mean allocators need to stay focused on their goals.

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Dulari Pancholi, a partner in and the head of marketable credit and multi-asset investments at NEPC, says it is important to remember that even though there is significant activity focused on hedge funds and active management, a significant portion is cautious restart, rather than a high-conviction move.

“What we’re seeing is people increasing from 0% to 5% of the portfolio,” she says. “Or they are already at 5%, so it’s going a bit higher, but we’re not in a time where hedge funds are going to be 20% of the portfolio like they might have been 10 or 15 years ago.”

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Pancholi says shifts are happening both at the portfolio construction level and at the market level. The slowdowns in private equity distributions and in private credit are pushing more investors to increase allocations to hedge funds and active management overall, even if only on the margins, to rebalance their portfolios.

“Allocators are at the point where they need to find other sources of return in their private markets portfolios,” Pancholi says.

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Pancholi says investors looking at portable alpha now are taking a more measured approach: They are using providers with which they already have an existing relationship, so that they are not taking on additional counterparty risk and beta risk at the same time.

“I don’t think we’re going to see the kind of growth we saw in these programs the first time. … Everyone was offering portable alpha,” Pancholi says. “Investors are very focused on liquidity. They’re focused on making the most efficient use of capital. They are also being more intentional about the sources of alpha and aren’t just using swaps. Their lived experience is influencing how those programs are constructed now.”

Outsourced chief investment officers are vying for business from healthcare institutions and hospital systems as the sector grapples with complex portfolios and liquidity pressures.

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Consultants-owned OCIOs are also taking aim. NEPC is trying to attract more healthcare clients through its “Skyan” enterprise risk-management software. The platform, launched in 2020, allows hospital systems to model how different scenarios from capital expenditures and wage adjustments to shifts in payer mix could impact their cash-flow projections.

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The software has allowed NEPC’s 47 healthcare clients to make more informed decisions on increasing investment risk and stress test those changes, said Dave Moore, healthcare team leader at NEPC.

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Many healthcare clients today are looking for peer-analysis tools, Moore added, something that NEPC is hoping to incorporate into Skyan by the end of the year. While the sector doesn’t have industry-recognized benchmarks for investment performance like other types of institutions, some hospitals want to see how their portfolios and operational costs compare to others in the same state, rating or asset size, Moore said.

Emerging markets equities have increasingly ignited interest for institutional investors in recent months and while commitments slowed in March due in part to geopolitical issues and what the industry views as short-term volatility, these investments remain beneficial to portfolios.

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“I think this trend of the best performing asset class gaining more attention and more assets generally holds true. Given that strong performance of 2025, we certainly expected emerging markets to be in vogue this year, and we likely expect continued growth,” said William Forde, head of marketable equity investments at investment consultant NEPC.

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Importantly to Forde, NEPC believes that earned growth drives equity performance.

“When you look at the equity growth expectations in the EM index, it has some of the strongest expectations globally. And so, because of that, I think investors are going to be tilted toward the emerging markets for the foreseeable future here,” he said.

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The big factors from a positive standpoint are some of the diversification benefits that EM provides, according to NEPC’s Forde.

“When you think about the U.S. and institutional investors likely being overexposed to growth, tech and AI, and there’s certainly some of that in the emerging markets, you get a much more diversified group of exposures investing within the EM asset class,” he said. “On top of that, you get exposure to emerging countries around the world that provide different growth trajectories relative to developed markets, which can all be diversifying depending on the overall asset allocation of the client. Some of the work that we’ve done would suggest that the rolling three-year correlations of emerging markets to developed markets has come down, therefore improved, over the past few years, providing some diversification away from a market which has been tilted more toward the Mag 7, AI and growth.”

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Forde heads up Boston-based NEPC’s marketable equity investment team of 11, where 100% of their time is devoted to finding the best managers across different asset classes, including the emerging markets. He thinks the space provides a better backdrop for active management.

“When you look at 2025, you’ve seen the median manager in the EM space outperform the MSCI EM Index by about 40 basis point,” he said. “There were certainly pockets of underperformance, but generally a pretty good year, while the median U.S. large-cap manager underperformed the S&P 500 by nearly 2%. And if you zoom out and look at that over a longer period, the same trend holds true, where EM managers typically prefer better from a relative standpoint than active managers here domestically.”

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Meanwhile, geopolitical risk is spread across the global market, according to Forde.

“We’re seeing it today here in the U.S., and so it’s tough for me to say that it’s any more a risk in the emerging markets. With that said, historically, EM has been a pretty volatile asset class, and investors certainly need to be aware of that when they think about the sizing of the allocation. We think the emerging markets are too big for investors not to allocate to, but understanding the volatility of the asset class should have implications on the way in which you size it, particularly relative to the broad MSCI ACWI Index,” he said.

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When corporate pension plan sponsors faced significant underfunding and long-duration liabilities, along with persistent low interest rates, after the global financial crisis, many pursued liability-driven-investment programs to address the critical problem.

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NEPC’s annual Corporate Defined Benefit Peer Study and Survey, released in April, showed plans did not de-risk further in 2025, with the average fixed-income allocation across the consultancy’s peer group roughly unchanged year-over-year.

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Matt Maleri, head of insurance at NEPC, says some pension plans are selling their long-duration fixed-income holdings, something considered unlikely five or 10 years ago, and buying in the belly of the yield curve. But he hesitates to say pension funds will no longer buy longer-duration debt.

“There are still many plans that need to buy long-duration fixed income, and there will be many that continue to hold it, but certainly you’re seeing a more emphasis and a bigger shift toward intermediate duration,” Maleri says.

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Maleri says NEPC is not sold on the idea that all the bond alternatives are perfect liability matches, but for plans with heavy fixed-income and hedging assets, exploring these alternatives as diversifiers makes sense.

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Maleri says NEPC is seeing many plans stick with their current investment managers, but change their mandates, such as moving into intermediate-duration bonds from long-duration bonds. Plan sponsors may need to use specialist firms to invest in nontraditional hedges, although he says more traditional LDI players are starting to offer these kinds of diversifying asset classes.

“They know they have an audience that is going to be a natural buyer of them,” he says.

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The past few years have been great for corporate pension funds. Strong portfolio performance has improved the funded status of corporate defined benefit pensions across the board, returning most plans to funding levels not seen in more than a decade.

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Most of these plans are well hedged through liability-driven-investing models. Even plans that use other investment frameworks, such as total return, saw similar increases in funded status and strong performance, according to data from Milliman and NEPC.

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Matt Maleri, partner in and head of insurance at NEPC, says, “We’re seeing much more attention paid to duration exposures and trying to match liabilities across the yield curve, not just in totality—also understanding the split between credit and Treasury bonds that is needed to match their liabilities.”

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NEPC’s Maleri agrees with the focus on long-term thinking.

“The purpose of an evergreen vehicle, in our view, is that you don’t need to constantly make new commitments to a fund that calls capital, draws it down and returns it,” Maleri says. “But we would caution plan sponsors that these aren’t really tools for liquidity.”

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