Approach very carefully and with a clear understanding of the trade-offs
One of the most significant shifts in retirement investing in decades is underway: the Trump administration has signed an executive order intended to open up 401(k) accounts and other employer-sponsored retirement plans to private-market assets – including private equity, private credit, and real estate.
For private-asset firms like Apollo, KKR, Carlyle, and Blackstone, this is an enormous opportunity. A $12 trillion pool of retirement savings could become accessible to their funds. But for everyday retirement savers, this development presents both opportunities and challenges. Let’s break down what this could mean for you.
Why This Matters to You
For decades, most 401(k) menu options have been limited to public stocks, bonds, and mutual funds. That’s been a safe framework, offering liquidity, transparency, and relatively low costs.
Expanding into private markets could alter that balance. These funds bring:
- New opportunities for growth – Private equity has historically produced higher average returns than the S&P 500. Similarly, private credit and direct lending strategies may provide attractive income potential compared to public bonds.
- Diversification – Adding asset classes that don’t always move in sync with the stock or bond market may smooth long-term portfolio returns.
- Access to a shrinking market – Today, fewer companies go public, meaning many of the most dynamic businesses remain private. Investing in PE could open exposure to companies that aren’t listed on stock exchanges.
What’s the Catch?
While the upside is appealing, private markets come with real risks and complexities that differ from traditional 401(k) investments. Consider the following:
- High Fees. Private equity and private credit funds tend to be far more expensive than index funds or target-date funds. While managers argue that “net returns after fees” still justify the cost, whether they do in practice will depend heavily on fund selection.
- Wide Variation in Outcomes. Unlike broadly diversified index funds, private equity returns vary dramatically across individual funds and managers. A top-quartile fund could significantly outperform, while a poorly chosen one may lag public markets.
- Liquidity Constraints. Private assets are less liquid than traditional stocks and bonds. Investors may not have the ability to withdraw funds quickly, since private equity managers often hold investments for years before selling or realizing returns.
- Legal & Fiduciary Uncertainty. Employers who offer private equity funds in their 401(k) menu could face lawsuits if high fees or poor performance harm employees. Until the Department of Labor provides clear safeguards, many smaller companies may be hesitant to add these investments.
How PE Might Show Up in Your 401(k)
Industry experts expect private market exposure may first appear in target-date funds – the most common default investment in workplace retirement plans. This would allow for a gradual allocation tailored to your age and risk profile, rather than requiring you to select a PE fund directly.
Funds could also be structured in new formats designed for individual retirement savers – more liquid, perpetual funds that recycle capital instead of tying it up for 10 years or more.
Private credit may enter 401(k) menus earlier than private equity, since its strategies (like direct lending) tend to generate steadier income and are easier for regulators and plan sponsors to accept.
What Investors Should Do Now
Private equity’s potential entry into 401(k)s is an exciting development, but it’s not one to approach casually. Here are a few takeaways:
- Stay informed – Not every 401(k) plan will include private equity, and rules may take years to finalize.
- Weigh risks versus rewards – Higher return potential comes with higher costs and more uncertainty about results.
- Rely on diversification – Even if private equity is included, it should remain just one piece of a well-rounded portfolio.
- Do not chase headlines – Smart investing is rarely about the new “shiny” option; it’s about thoughtful, long-term goals aligned with your risk tolerance.
Plan Thoughtfully
Private equity heading into everyday retirement accounts marks a turning point in personal investing. For private-asset managers, it’s an unqualified win. For retirement savers, it could offer valuable diversification – but only if approached carefully and with clear understanding of the trade-offs.
If and when these investment options show up in your 401(k), the right move will depend on your time horizon, goals, and tolerance for risk. As always, thoughtful planning and guidance are the most reliable way to make your retirement savings work for you.