Trump Executive Order Spurs 401(k) Influx Into Illiquid Private Markets

Retail Money Is Pouring Into Private Markets. What Could Go Wrong?

In late 2025, a landmark shift reshaped the retirement landscape as U.S. President Donald Trump signed an executive order allowing 401(k)s and other workplace retirement plans to invest in private markets. The decision aims to democratize access to alternative assets, long considered the domain of institutional investors, for everyday Americans. While the move is seen as a step toward better retirement outcomes through higher returns, it also introduces a host of risks for less experienced retail investors.

The appeal of private markets lies in their historical outperformance compared to public markets and their ability to offer diversification and inflation protection. These investments, which include private equity and private credit, have traditionally provided better risk-adjusted returns, especially as more companies delay or skip public offerings. However, opening these asset classes to retail investors raises concerns about whether they are prepared to navigate the complexities involved.

The regulatory landscape has also changed, with the SEC removing restrictions like the accredited investor rule and minimum investment thresholds for certain private fund investments. This has lowered barriers for retail participation but leaves gaps in investor protection. As a result, regulators, industry players, and insurers must work together to ensure that new participants are equipped to handle the risks inherent in private markets.

Risks and Challenges for Retail Investors

Private market investments come with significant risks, starting with illiquidity. Unlike public assets that can be traded daily, private investments often have long lock-up periods (5-10 years) and limited opportunities for early redemption. This can be problematic for retail investors who may need to adjust their portfolios due to changing life circumstances or poor fund performance according to WTW research.

Another major concern is the complexity and lack of transparency in private equity structures. Valuations are not based on market prices but on internal models, which may obscure underperformance or misrepresent risk. Retail investors, who often lack the expertise to evaluate these offerings, could be exposed to poorly designed products or misleading valuations according to WTW analysis.

High fees are another challenge. Private market investments typically charge higher management and performance fees than public assets. Retail investors, unlike institutional players, have less negotiating power to reduce these costs. Over time, these fees can significantly erode returns, especially in retirement savings accounts where compounding is a key factor according to WTW data.

Insurance and Regulatory Considerations

As private market investments enter the 401(k) landscape, insurers are adapting to cover new risks. Directors' & Officers' Liability, Professional Indemnity, and Crime insurance policies are becoming essential for firms navigating this evolving environment. These policies help protect against litigation, operational failures, and emerging liabilities that could arise from mismanagement or misrepresentation according to WTW research.

Regulators also face challenges in overseeing these new investments. While the SEC's guidance has removed some eligibility restrictions, it has not yet introduced robust safeguards such as stronger audit standards or liquidity protections. Without clearer rules and oversight, there is a risk that retail investors may bear the brunt of poorly managed or fraudulent private fund investments according to WTW analysis.

For retirement plan sponsors, fiduciary liability insurance is particularly important. As more employers consider adding private market options, they must balance employee demand with regulatory obligations. Any misstep—such as failing to disclose risks or selecting unsuitable investments—could lead to lawsuits or regulatory action according to WTW insights.

What This Means for Investors

The shift toward private market access for retail investors is likely to continue, driven by political, technological, and financial trends. Fintech platforms and digital advisors are already helping bridge the knowledge gap, but they cannot replace the need for transparency and investor education.

For now, the key lies in balancing opportunity with caution. While private markets offer the potential for higher returns, they also require a long-term commitment and a clear understanding of the risks involved. Retail investors entering this space must be prepared for illiquidity, complexity, and high fees—factors that have historically favored institutional players according to WTW analysis.

At the same time, regulators and market participants must ensure that new participants are not left vulnerable. Strengthening disclosure rules, improving liquidity protections, and expanding educational resources will be crucial in preventing adverse outcomes.