Written by: Antoine Gara, Jamie John, Eric Platt
Translation: Block unicorn
Recently, Donald Trump opened the door for private equity and cryptocurrency industries to access trillions of dollars in new investments from American retirement savers, which could reshape the financial futures of 90 million Americans and accelerate the growth of asset management companies 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.
This initiative came after strong lobbying from private equity groups like Apollo Global Management and BlackRock, which believe that joining these retirement plans is a pathway to attract hundreds of billions of dollars of profitable assets.
The measure is expected to allow 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 sell assets, which differ from the traditional stocks and bonds that currently dominate retirement plans.
Sean Mackey, global head of asset management at KPMG's audit department, stated: "The door to alternative investments is more open than ever before." He added, "Many leaders will see this as a business model opportunity."
Benjamin Shafrin, 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 that they may not even be aware of."
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 equity groups like BlackRock have turned to managing the savings of retirees and wealthy individuals for future growth.
Wall Street successfully persuaded Trump to sign this order, which will provide significant political and legal protection for the industry as they hope to convince 401k plan managers to include their funds in investment plans. According to their financial disclosures, Apollo, Carlyle, and BlackRock have conducted strong lobbying efforts.
Other groups, like BlackRock, are working through industry associations.
Some of the most influential leaders in the industry, including Apollo's Mark Rowan, have openly supported this effort.
Rowan and his peers have publicly stated that 401k savers without access to the private equity 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 high concentration of 401k savings in a few tech stock-dominated index funds. This week, he reiterated his call to open the 401k market to private investments, calling it "common sense."
According to sources, the influential Defined Contribution Alternatives Association, favored by many large private equity groups, even claimed in Washington that 401k plans could face lawsuits for not providing higher returns from private equity transactions.
Carlyle CEO Harvey Schwartz said this order "should have been issued long ago," as "wealthy clients have long had access to this space."
BlackRock stated that adding private investments to retirement plans will "ensure that millions of Americans build stronger, more diversified portfolios."
According to one official, the Trump National Economic Council and the Council of Economic Advisers acted as liaisons between the private capital industry and the president in the White House. 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 recently invested billions into cryptocurrency.
Some in the private equity industry worry that this order will link their funds to newer, more speculative cryptocurrencies, especially in light of the painful losses suffered by 401k plans from digital asset investments. However, sources say they view this as 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 are concerned about facing lawsuits from employees due to the high fees of these funds and the higher leverage many strategies employ.
Rajiv Chanda, a partner at Simpson Thacher & Bartlett, stated: "The costs of these lawsuits are high, and there are many settlement cases, but the situations where plaintiffs win in court are very few." He added that this concern has created a significant chilling effect, regardless of the basis of the lawsuits.
Trump directed government agencies to facilitate 401k plan managers in offering private investments, including measures to curb lawsuits against private investment strategies.
White House Deputy Press Secretary Kush D'Sai stated: "The only special interest guiding President Trump's decisions is the best interest of the American people."
"The president's historic executive order fulfills his promise to make alternative asset classes more democratic, modernize, and expand retirement investment options for ordinary Americans, making America wealthy again."
The focus now shifts to the Department of Labor, responsible for overseeing and enforcing the 1974 law that sets standards for companies providing 401k benefits.
Asset management companies are competing 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 investments within target date funds, where professionals select assets for decades of retirement planning. These funds will mix investments in publicly traded stocks and bonds with more opaque private assets.
Other companies provide private investment channels more directly but require companies to offer advisory services to 401k participants wishing to invest.
Empower, the second-largest retirement plan provider in the U.S., stated in May that it will 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 target date fund that combines public and private investments for the 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 a "strategic alliance" with Vanguard and Wellington Management to create mixed public-private funds for retirees, while KKR and Capital Group are exploring model portfolios and target date funds that span public and private sectors.
Michael Pedroni, a former Treasury official and now operating a policy consulting group called Highland Global, stated that the "big question" remains unresolved regarding how much more American households are willing to pay to access private assets, which have higher identification and management costs, thus higher fees.
"Currently, Americans are used to paying 30 to 50 basis points for their 401k. If the fees rise to 80 basis points, would they be willing to pay?"