Trump signs executive order to "unlock" retirement funds! Private equity and cryptocurrency will flood into 401(k) accounts
U.S. President Trump signed an executive order on Thursday aimed at allowing alternative assets such as private equity, real estate, and cryptocurrency to be included in 401(k) retirement accounts. The order clears the way for institutions like private equity funds to tap into the trillions of dollars in retirement savings of the American public, potentially opening up a massive new source of funds for managers of alternative assets beyond stocks, bonds, and cash, although critics pointed out that this could also expose retirement investments to excessive risks.
The summary of the order released by the White House states: "The Securities and Exchange Commission must consider how to facilitate investments in alternative assets by participants in defined contribution retirement plans." The order requires the Secretary of Labor to consult with federal regulatory agencies such as the Treasury Department and the U.S. Securities and Exchange Commission (SEC) to "re-examine" past guidance policies.
This move could be a boon for major alternative asset management firms such as Blackstone, KKR, and Apollo Global Management, as the $12 trillion defined contribution retirement market will be opened to them. Some companies have already established partnerships with pension management agencies. The world's largest asset management firm, BlackRock, plans to launch a retirement fund next year that includes private equity and private credit assets.
Supporters argue that younger savers could benefit from potentially higher returns from high-risk investments, while fund allocations will tend to become more conservative as retirement approaches. Morningstar analyst Jason Kephart stated: "For asset management firms, this is a $12 trillion market that was previously difficult to access, presenting a huge opportunity. However, from the perspective of individual investors, the outlook is unclear considering the additional fees, complexity, and lack of transparency."
Compared to traditional retirement funds that primarily invest in publicly traded stocks and bonds, these new investment options have lower disclosure requirements, poorer liquidity, and typically charge higher fees. In defined contribution plans, employees contribute their own retirement savings (with employers often matching contributions), and the funds belong to the individual employees, but unlike defined benefit pension plans, there are no guaranteed periodic payments upon retirement.