THE SET-UP: Apparently, Trump’s plan to let private equity tap into 401ks is part of his effort “to make his mark on retirement accounts in America.”
To me, that sounds like a threat. But it’s music to the ears of the folks at Kiplinger, who opened their write-up on Trump’s coming Executive Order thusly:
Democratizing access to asset classes isn’t reserved for startups and fintechs only. President Trump is also trying to level the playing field, paving the way for everyday investors to invest in alternative investments through their 401(k) or other defined contribution plans.
After many years writing about the boom-bust-bailout cycle that began with the deregulated Savings & Loan debacle, I now see a flashing red light whenever the word “democratization” is rolled-out in the business or financial press. “Democratization” is the financial industry’s code word for access to working and middle class assets.
Whether its their decades-long dream of privatizing Social Security or their successful migration of defined benefit pensions to defined contribution plans (a.k.a. 401ks), the people who play the market would love to play it with your “democratized” money.
Perhaps I am just cynical after watching the “democratization” of assets catalyze wild speculation until the market inevitably crashes. That’s when the losses get “democratized” through publicly-funded bailouts and the people who caused and profited from the bubble somehow get rewarded with capital after the crash. Then they gobble-up assets they helped to devalue for a fraction of the cost while the “democratized” losers take it in the shorts.
So, when Kiplinger write this:
That means employees could have access to investments such as private equity, hedge funds, private credit, real estate investment trusts (REITS), and venture capital funds through their 401(k)s. Trump is also making it easier for plan sponsors to include cryptocurrency in 401(k) plans.
I immediately reverse it to “that means private equity could have access to assets such as 401ks that retirees depend upon to make up the shortfalls in Social Security and Medicare—that is, if those programs are still viable after a couple more years of Trump ‘making his mark’ on the shrinking safety net.”
My reflexive cynicism was only encouraged by a Bloomberg report on private equity’s '“vicious cycle”:
[Firms] aren’t finding the price they want for the businesses they own, so their clients aren’t getting money back to invest in the next round of funds.
Apparently, the private equity business is experiencing a “deal drought” that’s led to the rise of undead entities:
Buyout firms almost never collapse. Instead, they risk turning into so-called zombie firms, with a reduced staff trying to shepherd a shrinking pile of existing investments rather than chasing the next big deals with fresh money.
…and just to put a bow on my cynicism about who is “getting access” in Trump’s 401k deal…
That threat is growing since more than 18,000 private capital funds worldwide are now soliciting investor cash, according to a Bain & Co. report released in June. Collectively, they’re seeking $3.3 trillion, translating into $3 of demand for every $1 of supply.
Well, I guess they’re about to “democratize” that shortfall by dipping into 401ks that have been bloated by the A.I.-intoxicated tech industry and a slew of buybacks. It also might be a red flag if the way PE is dealing with a “deal drought” is to chase more investor cash to make more deals. Maybe the market has hit an organic limit? Maybe if your “clients aren’t getting money back to invest in the next round of funds,” it might be a good idea to NOT rope in even more clients who might not get their money back?
Then again, I am an “anti-democratic” cynic and Trump is practically King Midas … just look at how he’s turned the Oval Office’s décor into gold. - jp
TITLE: Inside Private Equity’s $29 Trillion Retirement Savings Grab
https://www.forbes.com/sites/hanktucker/2025/07/24/private-equitys-29-trillion-retirement-savings-opportunity-under-trump/
EXCERPTS: Private asset managers have been gathering money from high-net-worth individuals for more than a decade. Until now, though, they haven’t cracked regular investors’ $29 trillion retirement nest egg—$12 trillion in defined contribution workplace plans like 401(k)s and $17 trillion sitting in individual retirement accounts. That’s now changing. Crucially, President Joe Biden’s Department of Labor threw cold water on private assets in 401(k)s, but President Donald Trump is reportedly close to signing an executive order specifically encouraging alternative assets in the accounts.
The mutual fund and retail distribution companies see a win here too. Their margins have shrunk as competition and the share of money in low-cost index funds have grown. A private-assets kicker is a new way to differentiate their offerings and charge higher fees.
This does not come without risk. In a recent report, Moody’s laid out a series of worries about the push to put private assets into ordinary Americans’ portfolios. A big one is that Main Street investors, used to quick access to their cash, will create liquidity risks. “These fund structures haven’t really been tested extensively at periods of market stress,” says Alexandra Aspioti, a Moody’s senior private credit analyst. “Retail investors tend to be more sensitive to market volatility and increase redemption requests during periods of stress—this in turn can lead to further volatility.” Another worry Moody’s describes: All those extra dollars sloshing around will encourage private asset managers to make dumber deals, particularly in credit.
The credit risk is real and growing. Private lenders face fewer regulatory requirements than traditional banks, which is largely why they financed 77% of private equity buyouts last year, according to Preqin. Private loans don’t trade and are valued only quarterly, with estimates that are often well off the mark. The International Monetary Fund warned last year that private lenders’ connections to private equity-backed companies could allow systemic problems to go undetected for too long.
As for retail investors and liquidity risk, there have already been scares. Blackstone had to limit redemption requests in its real estate income trust in late 2022 and most of 2023 when individuals spooked by rising interest rates raced for the exits. The market rebounded, and Blackstone is back to honoring 100% of repurchase requests, but there’s little assurance that a similar situation won’t result in a future crash.
Another concern: As exit deals from private equity funds have slowed, a fast-growing secondary market, including so-called continuation funds, has emerged, with a record $160 billion in transaction volume in 2024. With continuation funds, asset managers in essence are using new investors’ money to pay off old ones. Orlando Bravo, cofounder and managing partner of $184 billion (assets) Thoma Bravo, has cautioned that in this financial game of musical chairs, retail investors who are late to the party might get saddled with continuation funds with underperforming, hard-to-sell assets.
Then there are the objections raised by the Biden administration: that private assets might be too expensive and complex for 401(k)s. “These products are harder to understand and harder to value—it’s very different from looking at individual stocks traded on the public market or mutual funds,” says Lisa Gomez, who served under Biden as the Department of Labor’s assistant secretary for employee benefits security.
But private asset managers are betting that the Trump administration will dismiss such worries and are hoping it—and the Republican Congress—will provide some protection from worker lawsuits for employers who offer the new products in their 401(k)s. That could further line the pockets of the wealthiest people in finance. It also could be great for individual investors, who will no longer be locked out of the type of lucrative private investments that have made the nation’s colleges and pension plans so rich for so long. With so much information soon to be available at their fingertips, retail investors might prove to be smarter than Wall Street thinks. They need to keep an eye on fees, and there is risk, for sure. But blue-chip financials like Blackstone, Vanguard and Wellington are going to be extra-careful not to saddle retirement savers with lousy private investments, thereby damaging their brands. Other outfits might be less cautious—caveat emptor—but democratizing investing is well worth the attendant dangers.
TITLE: TRS eyes threat of retail investors in private markets
https://www.top1000funds.com/2025/07/trs-eyes-threat-of-retail-investors-in-private-markets/
NOTE: GP = General Partner is a fund’s active manager & LP = Limited Partner is an investor/entity that contributes capital to a fund
EXCERPTS: The private markets team at the Teacher Retirement System of Texas (TRS), the $211 billion Austin-based pension fund, is increasingly concerned about the amount of retail money flowing into real estate and private equity.
Speaking during the investor’s July board meeting, Neil Randall and Grant Walker, who oversee TRS’ private equity and real estate allocations respectively, explained that the global assets under management for retail alternatives is around $4 trillion today but that figure is expected to increase in size to around $13 trillion by 2032.
It means retail investors could account for 22 per cent of the global alternative AUM by 2032 compared to 16 per cent today, eating into the slice of the pie available to institutional investors and bringing unwanted risks around liquidity, transparency and valuations to private assets.
Retail investors have become an increasingly rich source of fees and capital for GPs. Many have turned to retail investors because of capacity constraints within the institutional investor community in turn triggered by the lack of exits in private equity.
Key concerns include transparency regarding the amount of retail capital raised alongside institutional capital in a particular fund. TRS wants to be able to work with GPs to devise a cap on the amount of retail money in the same fund they also invest in. Without this cap, retail dollars could suddenly swell the size of the fund and reduce the institutional weighting.
Other potential impacts from more retail capital flowing into private markets could be felt in LPs’ co-investment pipeline, eating into this valuable deal flow. It could also create potential conflicts between closed-end and semi-liquid funds.
It is just as big a concern in the real estate portfolio where TRS’ returns have been challenged by higher interest rates in recent years.
TITLE: Oregon’s pension fund bet big on private equity. That could be a problem
https://www.oregonlive.com/business/2025/07/oregon-pension-systems-risky-investment-strategy-under-scrutiny.html
EXCERPTS: For decades, Oregon’s public pension system has been kept afloat by a gusher of income from its investments in private equity, opaque private partnerships that typically buy companies, manage them, then try to sell them at some point for big profits.
The returns have played a meaningful role in maintaining the system’s financial health, routinely outpacing other investments and keeping a funding deficit caused by misguided benefit decisions decades ago from becoming even larger than the nearly $30 billion shortfall today.
Yet in the past several years, even as the stock market has been booming, that private equity gusher has slowed to a relative trickle. That’s undermining the system’s total investment returns, causing cash flow issues and, as of July, contributing to another rise in the punishing contribution rates that government employers are required to make to the fund.
For some, the slowdown raises fundamental questions about whether the system’s distinctly aggressive investment strategy, now dominated by so-called alternative assets that lock up its cash for years at a time, is a mismatch for the demands of Oregon’s mature pension system; whether it’s too risky; or has simply run out of competitive gas because so much copy-cat money has flooded into the sector seeking premium returns.
The implications for taxpayers are meaningful, as investment income has traditionally covered 70% of the system’s benefit payments. If returns are lower, contributions from government employers will need to be higher. And contributions already eat up 27 cents on top of every payroll dollar spent by state and local governments, meaning cities, counties and the state have less money to spend on teachers, cops, firefighters, roads and bridges, libraries, mental health services, and every service that government provides.
Managers at the Oregon Treasury’s Investment Management Division remain optimistic, saying markets are cyclical, and the big payoffs from their complex bets should return. But others aren’t so sanguine and say the market is fundamentally changing, leaving less room for the big scores of the past.
Oregon could be particularly vulnerable to such a downturn because its Public Employees Retirement Fund is something of an outlier among U.S. public pension systems, a review by The Oregonian/OregonLive has found. More than 27% of Oregon’s portfolio is invested in private equity funds, above its own internal target and almost triple the 10.4% average allocation of 201 public pension funds surveyed by the National Conference on Public Employee Retirement Systems.
Historically, those investments delivered big returns, typically outpacing public markets by wide, if diminishing, margins since the 1980s. Over the past 10-year period, they’ve generated annual returns of 12.7%.
But a couple things have changed, experts say. A tsunami of new money has flooded into the private equity sector, increasing competition, driving up the prices they pay for companies, and erasing some of the market inefficiencies the funds used to be able to exploit. Coupled with the big fees the fund managers charge, that has eroded the premium returns that the funds were historically able to deliver.
Oregon paid more than $600 million in fees last year to outside managers of its alternative investments, nearly half of it to private equity mangers.
Since 2022, another problem has been higher interest rates, as private equity funds rely heavily on debt to finance acquisitions and goose returns. Higher rates make buyouts more expensive and less financially viable, and companies acquired in leveraged buyouts may struggle to meet high debt payments.
Richard Solomon, a Portland certified public accountant who served on the investment council from 2004 to 2015, including three years as chair, said he questions if the tides have shifted and private equity will be a less attractive means for big windfalls going forward.
“There’s a huge number of players these days and they’re chasing smaller and smaller deals,” eliminating some of the easier gains of years’ past, he said. That makes it ever more critical that Treasury staff choose the right funds.
Solomon said he thinks it’s appropriate for Oregon to be invested in the sector, to a point.
“Should we be in it to the extent we’re in it?” he said. “That’s doubtful.”
“If things don’t turn around pretty quickly in that private equity ice block they’re sitting on, they’re going to be in some pretty big trouble,” [said] Doug Berg, a retired information technology manager from Eugene who closely tracks the performance of the pension fund.
“None of the people I follow and respect in this area believes distributions will come back any time soon or that returns will improve,” said Richard Ennis, a longtime consultant to institutional investors and deep skeptic of the rush into alternatives.
Oregon’s projections for what those private equity investments will yield for the pension fund, he added, amount to “fanciful thinking at this point in the cycle.”