London-listed Private Equity Funds Show Hidden Risks for 401(k) Investments.

A new study on listed private equity funds in London found that they are highly volatile, with a beta of 1.7 and a Sharpe ratio of 0.13, compared to 0.39 for global stocks. Since the 2008 financial crisis, listed private equity has returned 5% annually, nearly three percentage points behind the global stock gauge. The study warns that the results may foreshadow the performance of retail private equity investments in 401(k) accounts.

A recent study on listed private equity funds in London has revealed significant volatility and underperformance, raising concerns about the potential risks for retail investments in 401(k) accounts. The study, co-authored by Dan Rasmussen and Richard Ennis, analyzed 13 relatively small funds over 17 years, finding that listed private equity's volatility is roughly 70% higher than that of global stocks, with a beta of 1.7 and a Sharpe ratio of 0.13, compared to 0.39 for the MSCI All Country World Index [1].

Since the 2008 financial crisis, listed private equity has returned 5% annually, nearly three percentage points behind the global stock gauge. The study warns that these results may foreshadow the performance of retail private equity investments in 401(k) accounts. The study also found that listed private equity funds often trade at deep discounts to their stated value, with shares around 10% to 30% below their net asset value (NAV). This discrepancy suggests that market participants may be overestimating the value of their portfolios if they rely on manager-reported NAVs [1].

The study's findings are particularly relevant as the British Columbia Investment Management Corp. (BCI) is preparing to sell $2 billion in private equity assets through the secondary market, reflecting a broader strategic shift among institutional investors. This divestment aligns with global trends, as limited partners (LPs) have recorded $54 billion in secondary sales in 2025, prioritizing liquidity over illiquid stakes amid public market outperformance [2]. The sale of 17 fund interests by BCI will free up capital for direct co-investments in AI-driven infrastructure and ESG-aligned sectors, supporting BCI's 10% annual returns and sustainable growth objectives.

The study's cautionary insights and BCI's strategic shift underscore the need for careful consideration when allocating 401(k) savings to private equity. While private equity giants like Blackstone Inc. and Apollo Global Management Inc. have delivered impressive long-term returns, the risks and potential underperformance highlighted by the study should not be overlooked. As retail investors evaluate their 401(k) portfolios, it is crucial to weigh the potential benefits of private equity against the significant volatility and discounts observed in listed funds.

References:
[1] https://www.bloomberg.com/news/articles/2025-08-14/private-equity-funds-traded-in-london-hint-at-hidden-401-k-risk
[2] https://www.ainvest.com/news/british-columbia-pension-eyes-2-billion-private-equity-sale-strategic-shift-era-alternative-asset-investors-2508/