Private equity firms are hoping that the new Trump administration makes it easier for them access to something they have long wanted: your 401(k).
Main Street retirement savings are viewed by Wall Street investment giants as a way to boost demand for non-listed, illiquid bets that aren’t traded on any public exchange.
Such investments include real estate funds, private credit and leveraged buyouts of companies.
Typically private equity firms such as Apollo (APO), Blackstone (BX) and KKR (KKR) pool money from high net worth individuals and institutional investors such as endowments, public pensions to make these bets.
What they have long wanted to tap is more than $12 trillion currently housed in defined-contribution plans that workers rely on for their retirement nest eggs, such as 401(k)s.
The Biden administration has not warmed to that idea, but industry watchers expect that to change under Donald Trump’s second term. He is expected to broadly loosen regulations that affect the world of financial services.
“We’ll make the case for a pro-growth regulatory regime that supports small businesses and provides more opportunity to everyday investors,” said Drew Maloney, president and CEO of private equity lobbying group American Investment Council.
The argument for such a change is that private equity funds could give everyday investors more diversification away from public markets and a shot at bigger returns — in exchange for some illiquidity.
The reasoning aligns with broader concerns many investors have over the historically high valuation of the current stock market and the concentration of Big Tech stocks. Of the top 10 companies in the S&P 500 index (^GSPC), all but Berkshire Hathaway (BRK-A, BRK-B) are tech giants. Together those 10 account for 37% of the index.
Marc Rowan, CEO of Apollo, has argued that too many investors are relying on the performance of too few public companies.
“Should we get access to 401(k) through broad-based reform or regulatory change or regulatory encouragement, I believe that would be upside not just for us but for the entire industry,” Rowan told analysts in November. (Disclosure: Yahoo Finance is owned by Apollo Global Management)
Today both private and public assets carry risks and rewards, Rowan told Yahoo Finance later that same month, with more companies opting to go private than public.
“The biggest trend in our industry is investors, individual investors, and institutional investors looking at their fixed income bucket and saying to themselves, why is this 100% public?”
Others in his industry have made similar points.
“I totally agree with our brethren at Apollo,” BlackRock (BLK) Chief Financial Officer Martin Small said in December at a Goldman Sachs conference, when discussing the topic of putting private loans into retirement portfolios.
Getting private equity into 401(k)s “is a big opportunity” and “just makes sense,” KKR co-CEO Scott Nuttall said at the same Goldman conference in New York.
The argument against opening retirement savings to private equity is that the funds can be riskier than plain-vanilla index funds and are less liquid, making it difficult to get money out if things go sideways.
Private equity also isn’t cheap, as fees can eat into investment gains. Many private equity firms charge investors fees that amount to 2% of assets and 20% of any profits.
There is no law stating that private equity can’t be a part of 401(k) offerings that millions of Americans rely on for their retirements savings, but what the industry will likely want is specific guidance from the Labor Department stating that such investments can be acceptable alternatives for these accounts.
The first Trump administration said as much in 2020. But the Biden administration’s Labor Department reversed that guidance by saying it didn’t recommend it.
Any new guidance on this front from Washington may also need to come with legal liability protection for retirement plan sponsors and administrators, Nuttall said in December.
They are “clearly going to need some comfort for themselves from a litigation risk,” he added.
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
Click here for in-depth analysis of the latest stock market news and events moving stock prices
Read the latest financial and business news from Yahoo Finance
EMEA Tribune is not involved in this news article, it is taken from our partners and or from the News Agencies. Copyright and Credit go to the News Agencies, email news@emeatribune.com Follow our WhatsApp verified Channel
