Author: Wall Street Journal
Trump signs an executive order to push for the opening of private equity and other alternative assets to 401K retirement plans.
On Thursday, U.S. President Trump signed an executive order allowing alternative assets such as private equity, real estate, and cryptocurrency to enter 401K retirement savings plans, opening the door to approximately $12.5 trillion in retirement account funds for these industries.
The executive order instructs the U.S. Securities and Exchange Commission (SEC) to revise relevant regulations to facilitate alternative asset investments for participant-directed defined contribution retirement savings plans. Previously, these retirement plans typically invested in relatively safe stocks and bonds.
Reports indicate that Trump will direct the U.S. Secretary of Labor to re-examine fiduciary duty guidance related to alternative asset investments and instruct her to consult with Treasury Secretary Yellen and the SEC to determine what regulatory changes can be made.
White House officials stated that Trump signed the executive order to provide more investment options for American workers, believing that alternative assets such as private equity, real estate, and digital assets can offer competitive returns and diversified income.
Analysts believe this move will bring a significant capital injection to the private equity industry, which is in urgent need of funds, and is also an important part of Trump's push for the cryptocurrency industry.
Is the asset management industry welcoming new opportunities?
The White House has been weighing this directive for months, aimed at alleviating the legal concerns that have long hindered alternative assets from entering most employees' defined contribution plans. Retirement portfolios primarily focus on stocks and bonds, partly because corporate plan administrators are reluctant to engage in illiquid and complex products.
This move echoes measures from Trump's first term when the Department of Labor issued guidance stating that if retirement plan administrators include private equity in their portfolios, they would not violate their fiduciary duties. This guidance was later rescinded during the Biden administration.
Both alternative asset and traditional asset management companies are eager to share the fixed contribution market pie, viewing it as the next frontier for growth. Institutional investors like U.S. pension funds and endowment funds have reached their internal limits on private equity investment amid a slowdown in trading activity and insufficient client allocations.
Opening private market products to 401K will provide savers with more investment choices, and supporters believe this will bring greater potential returns. However, it also comes with greater risks and higher fees, which may expose retirement plan administrators to litigation risks.
Advancing cryptocurrency policies
This initiative echoes Trump's efforts to promote the cryptocurrency industry. Last month, Trump hosted a 'Crypto Week' event at the White House and signed the first federal stablecoin regulatory law. He also appointed David Sacks, a venture capitalist from Craft Ventures LLC, as the first White House czar for artificial intelligence and cryptocurrency.
In March, Trump hosted industry leaders at the White House and signed an executive order requiring the establishment of strategic Bitcoin reserves and other digital asset reserves. According to the Bloomberg Billionaires Index, multiple cryptocurrency projects launched by Trump and his family have recently added at least $620 million to their net worth.
The argument made to policymakers by asset management companies is that as the public markets shrink, savers' portfolios fail to reflect changes in the financial industry. Since peaking in the 1990s, the number of publicly listed companies in the U.S. has significantly decreased, while private equity asset sizes have more than doubled over the past decade as of 2023.