Compared to public market investments, private equity investments are subject to different regulatory disclosure requirements, oversight, and controls, the letter also said. "In addition, valuation of private equity investments is more complex because private equity investments often have no easily observed market value, and there is often an element of judgment involved in valuing each of the portfolio companies prior to their sale by the investment fund or other liquidity event" such as a public offering.

The letter also said that a plan fiduciary must consider whether he or she has the skills, knowledge, and experience to make the required determinations or whether the plan fiduciary needs to seek assistance from a qualified investment adviser or other investment professional. The fiduciary also must periodically review whether the investment vehicle continues to be prudent and in the best interests of plan participants, taking into account the considerations outlined above and any other factors that the plan fiduciary deems appropriate in light of its fiduciary duties under ERISA."

A fiduciary "must also determine whether plan participants will be furnished adequate information regarding the character and risks of the investment alternative to enable them to make an informed assessment regarding making or continuing an investment in the fund. This factor would be especially important in the case of a plan or responsible plan fiduciary claiming limited fiduciary liability, the letter also read.

The DOL issued the letter in response to requests from Pantheon Ventures (US) L.P. and Partners Group, which have developed private equity investments designed to be used as a component of a managed asset allocation fund in an individual account plan.

The Partners Group, a global private markets investment manager, said the guidance clears "an important hurdle" and clarifies that pension plan fiduciaries can incorporate private equity components into diversified investment options.