Trump's Executive Order to Open 401(k)s to Private Markets: A New Era for Retirement Investing

In July 2024, President Donald Trump is expected to sign an executive order that could fundamentally reshape the U.S. retirement savings landscape. The directive will direct the Department of Labor and the SEC to issue guidance enabling 401(k) plans to include private market investments—such as private equity, venture capital, and real estate. This move, long lobbied for by the private equity industry, aims to unlock access to a $12.5 trillion asset pool and mark a pivotal shift in how Americans save for retirement.

The Long-Term Implications for Private Equity

The inclusion of private markets in 401(k) plans represents a seismic opportunity for the private equity sector. Historically, private equity has been the domain of institutional investors and accredited individuals, characterized by high minimum investments and illiquidity. By integrating these assets into retirement accounts, the industry gains access to a vast new capital base.

BlackRock's research underscores the potential: a 5% to 20% allocation of private assets in target-date funds (TDFs) could generate an incremental 50 basis points in annual returns over 40 years. This is not merely speculative. Defined benefit (DB) plans, which have long included private equity, achieve an average 16% allocation and outperform 401(k) plans by roughly 50 basis points annually. If private assets can replicate this performance in defined contribution (DC) plans, the implications for retirement wealth are profound.

However, challenges persist. Private equity is not a panacea. Its performance is cyclical, and fees—typically 2% management and 20% carried interest—can erode returns. Moreover, the lack of liquidity and transparency in private markets raises concerns about suitability for retail investors. The SEC's 2026 policy agenda, which includes private equity in retirement savings as a priority, signals awareness of these risks but also a growing appetite to address them.

Institutional Investor Behavior: Caution Meets Opportunity

The executive order is already prompting institutional investors to act. Firms like Apollo Global Management and Blue Owl Capital are launching TDFs with private market components, while BlackRock plans a 401(k) TDF with a 5% to 20% private allocation in 2026. These moves reflect a calculated approach: private assets are being introduced via pooled vehicles (collective trusts, managed accounts) to mitigate liquidity and fiduciary risks.

Yet institutional caution remains. Smaller plan sponsors, lacking the expertise to evaluate private investments, are likely to lag behind. The Department of Labor's Employee Retirement Income Security Act (ERISA) mandates prudence in fiduciary decisions, and many employers are wary of legal exposure if private assets underperform. Larger sponsors with in-house teams, such as Fortune 500 companies, are expected to lead adoption, while smaller employers may rely on third-party administrators.

A key debate centers on pricing and structure. BlackRock and others are emphasizing competitive fees and liquidity management strategies to align private assets with the needs of DC plans. For example, Apollo's partnership with State Street includes a glidepath where private allocations decrease as investors near retirement. This approach balances growth potential with the need for liquidity in the final years of a retirement plan.

Diversification Strategies for 401(k) Holders

For individual investors, the integration of private markets into 401(k)s offers both promise and peril. Diversification is the primary argument: private assets are less correlated to public markets and can provide inflation protection and risk-adjusted returns. However, diversification must be approached with care.

1. Allocation Gradually Increases with Time Horizon: Younger investors (ages 25–40) may benefit from higher private allocations (10–20%) due to their longer time horizon and ability to weather illiquidity. As investors approach retirement, allocations should decline to 5–10% to prioritize liquidity.
2. Leverage Pooled Vehicles: Direct private equity investments are ill-suited for most 401(k) participants. Instead, pooled vehicles like TDFs or managed accounts, which aggregate investments and manage liquidity, are preferable. These structures also allow for professional oversight, reducing the risk of mismanagement.
3. Monitor Fees and Performance: Private assets come with higher fees. Investors should compare net returns (after fees) to traditional investments. For example, a private equity fund charging 2% and 20% should demonstrate at least a 2% annual outperformance over public markets to justify the cost.

The Risks and the Road Ahead

Critics, including Senator Elizabeth Warren, warn that the risks of private markets—high fees, complexity, and illiquidity—outweigh the benefits for average retirees. They argue that plan administrators could face lawsuits if investments underperform, particularly in a post-2025 regulatory environment where fiduciary standards remain undefined.

The Trump administration's guidance will need to address these concerns. For instance, the 2020 Labor Department guidance emphasized that private assets must be included prudently, with fiduciaries ensuring a “reasonable understanding” of risks. The SEC's focus on transparency and investor protection in 2026 suggests that regulatory guardrails will be critical to the success of this initiative.

Conclusion: A Paradigm Shift with Nuanced Opportunities

Trump's executive order is not a silver bullet for retirement savings, but it is a paradigm shift. By opening 401(k)s to private markets, the administration is acknowledging the evolving nature of capital markets and the need for diversification in an era of public market concentration. For private equity, this represents a $12.5 trillion opportunity. For institutional investors, it demands careful structuring and risk management. For individual savers, it offers a chance to build wealth through alternative assets—if approached with discipline and awareness of the risks.

As the first private-equity-linked 401(k) products hit the market in 2025, investors must ask: Are they ready to embrace a new era of retirement investing? The answer will shape the financial futures of millions.