Authors: Antoine Gara, Jamie John, Eric Platt
Compiled by: Block unicorn
Recently, Donald Trump opened the door for trillions of dollars in new investments from American retirees into the private equity and cryptocurrency industries, which could reshape the financial future of 90 million Americans and accelerate the growth of asset management firms and digital currency groups.
However, this order allowing 401k savings plans to invest in a range of alternative assets also exposes American retirees to new risks.
The initiative came after strong lobbying from private capital groups like Apollo Global Management and BlackRock, which believe that including these retirement plans is a way to attract hundreds of billions of dollars in lucrative assets.
The measure is expected to enable retirement funds to invest in a range of unlisted investments, from corporate acquisitions and private loans to infrastructure deals. This could expose them to higher fees and lower transparency. Of the $9 trillion in assets held in these 401k plans, some may be directed towards hard-to-value and illiquid assets, which differ from the traditional stocks and bonds that currently dominate retirement plans.
Sean Mackey, global head of asset management at KPMG, stated, "The door to alternative investments is wider open than ever before." He added, "Many leaders will see this as a business model opportunity."
Benjamin Shapiro, director of securities policy at Better Markets, warned that this move is "bad news" for 401k plan holders. He said, "Retail investors will face a completely different type of asset, and they may not even realize it."
Acquisition groups have been working to sell trillions of dollars in investments and deliver returns to investors. This has prompted pension funds and foundations to withdraw from the industry, cutting off a vital source of cash. Large private capital groups like BlackRock have turned to managing the savings of retirees and wealthy individuals for their future growth.
Wall Street successfully persuaded Trump to sign this order, which will provide significant political and legal protections for the industry as they seek to convince 401k plan managers to include their funds in investment plans. According to their financial disclosures, Apollo, Carlyle, and BlackRock engaged in intense lobbying efforts.
Other groups, such as BlackRock, have also worked through industry associations.
Some of the most influential leaders in the industry—including Apollo's Marc Rowan—publicly support this effort.
Rowan and his peers have openly stated that 401k savers who do not enter the private market will miss out on diversification and high return potential.
Rowan stated in February, "We are essentially betting the nation's retirement system on Nvidia," referring to the heavy concentration of 401k savings in a few tech-stock-dominated index funds. This week, he reiterated the call to open the 401k market to private investments, calling it "common sense."
According to insiders, the influential lobbying group Defined Contribution Alternatives Association, favored by many large private equity groups, even claimed in Washington that 401k plans could be sued for not providing the higher returns associated with private equity transactions.
Carlyle CEO Harvey Schwartz stated that this order "should have been issued long ago," as "wealthy clients have long been able to access this space."
BlackRock stated that adding private investments to retirement plans will "ensure that millions of Americans build stronger, more diversified portfolios."
According to an official, Trump's National Economic Council and Council of Economic Advisers acted as liaisons between the private capital industry and the president. Deputy Chief of Staff Stephen Miller's office assisted in drafting the order.
A senior advisor indicated that the government's interest in cryptocurrency played a role in bringing this order to the president's desk, noting its popularity in the White House.
Trump has made deregulation of digital assets a central theme of his administration, believing that the industry helped him win the 2024 presidential election. Entities controlled by the Trump family have also recently invested billions of dollars in cryptocurrency.
Some in the private equity industry are concerned that this order will link their funds to newer, more speculative cryptocurrencies, especially in light of painful losses suffered by 401k plans due to investments in digital assets. However, insiders believe this is an acceptable trade-off.
While there are no explicit prohibitions against investing in alternative assets, 401k plan managers have been cautious about investing in these assets. Most managers worry about facing lawsuits from employees due to the high fees of these funds and the higher leverage employed by many strategies.
Rajib Chanda, a partner at Simpson Thacher & Bartlett, stated, "The costs of these lawsuits are high, and there are many settlement cases, but plaintiffs rarely win in court." He added that this concern "creates a huge chilling effect, regardless of the basis for the lawsuit."
Trump directed government agencies to facilitate 401k plan managers in providing private investments, with some measures including provisions aimed at curbing lawsuits against private investment strategies.
White House Deputy Press Secretary Kush D'Sai stated, "The only special interest guiding President Trump's decision-making is the best interest of the American people."
"The president's historic executive order fulfills his promise to democratize, modernize, and expand retirement investment options for ordinary Americans, making America wealthy again."
The focus now shifts to the Department of Labor, which is responsible for overseeing and enforcing the 1974 law that sets standards for companies offering 401k benefits.
Asset management firms are racing to prepare 401k products in anticipation of guidance from the Department of Labor expected to be released in the next six months. Many companies have announced partnerships to offer private investment options within target date funds, where professionals select assets for decades-long retirement plans. These funds will mix investments in publicly traded stocks and bonds with more opaque private assets.
Other companies are more directly offering private investment channels but require companies to provide advisory services for 401k participants wishing to invest.
Empower, the second-largest retirement plan provider in the U.S., announced in May that it would partner with Apollo, Goldman Sachs Asset Management, and Partners Group to provide private asset investment channels for retirement plans.
A month later, BlackRock announced it would provide a mixed public and private investment target date fund for 401k investment provider Great Gray Trust. Additionally, BlackRock is developing its own target date fund that includes private assets.
Other partnerships have also emerged. BlackRock has formed "strategic alliances" with Vanguard and Wellington Management to create blended public-private funds for retirees, while KKR and Capital Group are exploring the creation of model portfolios and target date funds that span both public and private sectors.
Michael Pedroni, a former Treasury official and now with the policy consulting group Highland Global, stated that the "big question" remains unresolved regarding how much more American families are willing to pay for access to private assets, which have higher identification and management costs, thus leading to higher fees.
"Currently, Americans are used to paying 30 to 50 basis points for their 401k. If the fees rise to 80 basis points, will they be willing to pay?"
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