According to people familiar with the situation, the Trump administration is drafting an executive order to expand access to private-market investments for U.S. retirement plans. Large private equity firms like Apollo Global Management and Blackstone may be able to gain new access to the $12.4 trillion defined-contribution retirement market as a result of the move.
The anticipated order would require the Securities and Exchange Commission and the Department of Labor to issue official guidance clarifying how employers and plan administrators can include private assets in 401(k) offerings. While officials are still reviewing the specifics, the guidance would mark a substantial shift in federal policy, potentially opening up enormous pools of individual retirement savings to private equity and alternative investments.
Trump to sign executive order to open up 401(k) to private markets
Asset managers are turning to individual retirement savers for growth as institutional investors, such as pension funds, have already made significant allocations to private markets. While 401(k) plans can technically include private-market funds, most businesses avoid them due to fears of employee lawsuits over high costs and complexity.
“We’ll likely need to see litigation reform, or at least some advice reform in the U.S. to add private markets exposure” into defined-contribution retirement plans, said BlackRock CFO Martin Small.
The administration has received lobbying from private fund managers for policy changes that would facilitate the integration of their products into traditional retirement portfolios. Apollo and State Street have already launched a target-date fund that includes private assets, and Blue Owl Capital is working with Voya Financial to develop similar products.
The Trump administration’s proposal would build on the 2020 Labor Department letter that allowed private equity allocations in target-date funds under specific conditions. In 2021, the Biden administration reversed that position, declaring that it “did not endorse or recommend such investments.” Leaders in the sector contend that institutional and retail investors ought to have equal access to opportunities. However, not everybody is in agreement. Ben Shiffrin, director of securities policy at Better Markets, stated, “One of my biggest worries is, you’re still going to have the institutional investors get the best offerings…and your retail investor is going to be left with the leftovers”
Further legislative or regulatory reforms may be necessary to determine whether the proposed order results in long-lasting change. However, private equity firms have a strong incentive to continue advocating for access, given the trillions of dollars in potential capital that are at stake.
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