The private equity industry, facing a slowdown in exits and fizzling returns, has long coveted a $12.2 trillion pool of money: retirement savings. Now it is one step closer to managing some of the funds in Americans’ 401(k)s and related plans.
President Trump signed an executive order on Thursday that clears a path for plan managers to add private equity and other alternative assets to retirement savings accounts. The administration’s stance “marks a major step forward in modernizing the retirement plans of everyday savers,” Jaime Magyera, the head of BlackRock’s retirement business, said in a statement to DealBook. (BlackRock, the world’s largest asset manager, earlier this summer announced a big push to include private equity and private credit in its retirement plans.)
Taking private assets mainstream would mark a notable shift: Private market investments, while not technically barred from 401(k) plans, are riskier than publicly traded stocks and bonds. They have traditionally been seen as unfit for defined contribution plans.
Consumer groups, lawmakers and some investment advisers have raised alarm about the potential harm to everyday investors. Those concerns have been front and center. But observers say the private asset industry, which has lobbied hard for the opening, could also expose itself to risks.
Trump’s much-anticipated order does not change policy. But it directs the Labor Department, which oversees retirement plans, to re-evaluate its fiduciary guidelines and clarify its position on the proper process when offering funds that include alternative assets. Notably, the cryptocurrency and real estate industries are also poised to benefit.
Proponents say the order expands investment opportunities for retirees. It might make some plan sponsors realize that these assets “can be part of a prudent asset allocation of a 401(k) plan,” Erin Cho, a partner in the law firm Mayer Brown’s employment and benefits practice, told DealBook.
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