The long-standing wall between 401(k) plans and private equity could be coming down. According to reports, President Donald Trump is expected to sign an executive order that would allow retirement plans to allocate a portion of their assets to private equity investments.
For wealth managers and fiduciaries, the implications are significant. The proposed change would give private equity firms access to a massive $12 trillion market—a shift that could reshape the retirement landscape. But experts warn that introducing private equity into retail retirement accounts adds complexity, cost, and risk that may not align with the objectives of most participants.
Why Private Equity Wants In
Private equity’s interest in the retirement space is hardly surprising. After years of strong returns, the industry is grappling with a slowdown in exits. Traditional liquidity events—IPOs, sales to strategic buyers, or secondary deals with other private equity firms—have largely stalled.
A recent PwC analysis estimates that 4,000 to 6,500 private equity exits have been delayed over the past two years. With limited partners demanding distributions, firms are looking for alternative sources of liquidity. The 401(k) market, with its vast and relatively stable pool of assets, represents an attractive solution.
“This looks like an exit ramp for private equity,” says Brian Payne, chief private markets and alternatives strategist at BCA Research. “The slowdown in traditional exits has created pressure. Gaining access to retirement vehicles is a way to ease that strain.”
If private equity gains entry, expect other alternative asset classes—such as private credit, infrastructure, and real estate—to follow closely behind.
The Risks for Retirement Savers
For all its allure, private equity remains an illiquid, opaque, and high-cost investment strategy—traits that sit uneasily with the core principles of retirement planning.
“Private equity kind of always gets what it wants in Washington, but this is a bad idea,” says Jeffrey Hooke, senior lecturer at Johns Hopkins Carey Business School. “These funds are illiquid, their fees are extremely high, and historically, they don’t consistently outperform public equity markets over the long term.”
Hooke underscores a fundamental issue: retirement savers value liquidity and transparency, while private equity thrives on long lock-up periods—often a decade or more—and complex valuation methods. “I don’t think it’s a good fit for the rank-and-file investor,” he adds.
Payne shares similar concerns, noting that while private equity has delivered premium returns historically, those returns depend on the illiquid nature of the asset class. “When you start adding retail liquidity requirements, those returns compress,” he says.
Fee Drag and Performance Risk
The economics of private equity also warrant scrutiny. Management fees and performance incentives can significantly erode returns over time. In defined contribution plans, where cost efficiency is critical, these additional layers of fees could make overall performance suboptimal.
“It’ll make the retirement plans suboptimal,” Hooke cautions. “People will look back 20 or 30 years from now and wonder why their returns were lower than expected.”
While retirement plans are designed for long time horizons, the assumption of stability may not always hold. In the event of an economic downturn that triggers layoffs, more participants could be forced to access their retirement funds early, creating a mismatch between liquidity needs and portfolio structure.
Moody’s Investors Service recently flagged this very issue, warning that introducing illiquid assets into retail portfolios creates systemic vulnerabilities.
Limited Impact—For Now
Despite these concerns, experts believe private equity will likely represent a small slice of retirement allocations—perhaps around 10% over time. This modest exposure could help contain systemic risk while offering some diversification benefits.
Corporate sponsors, meanwhile, may be reluctant to embrace the change quickly. Fiduciary responsibility under ERISA means plan sponsors must ensure investments serve the best interests of participants—a high bar when it comes to complex, opaque asset classes.
Glenn Schorr, senior research analyst at Evercore ISI, notes that sponsors will move cautiously, if at all: “There’s headline risk, operational complexity, and the challenge of explaining these products to participants.”
The Bigger Picture: Retail Meets Alternatives
Trump’s expected order is the latest milestone in a broader trend: the convergence of public and private markets. Alternative investments, once the exclusive domain of institutional investors and the ultra-wealthy, are increasingly making their way into retail channels.
For wealth advisors and RIAs, this shift presents both opportunity and challenge. On one hand, access to private equity and other alternatives can provide clients with tools for diversification and potential return enhancement. On the other, it introduces significant fiduciary considerations, product due diligence requirements, and the need for clear client education.
“When you get retail involved in opaque markets, with very different liquidity structures, very different risks, and ultimately very different strategies, it doesn’t end well,” Payne warns.
What Advisors Should Watch
If private equity enters the 401(k) ecosystem, advisors must monitor several factors:
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Product Design: Will offerings be structured as pooled vehicles, target-date fund components, or separate sleeves within plan menus?
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Fee Transparency: How will sponsors manage the high cost of private equity within a framework that prioritizes low fees?
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Liquidity Management: What mechanisms will plans adopt to handle participant withdrawals without forcing distressed asset sales?
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Valuation Practices: How will plans provide accurate and timely valuations for inherently illiquid assets?
These operational questions matter as much as the investment thesis. Fiduciary liability for plan sponsors—and potentially for advisors involved in plan oversight—hinges on rigorous due diligence and prudent process.
Looking Ahead
Whether Trump’s executive order becomes reality or not, the trajectory is clear: the walls separating retail and institutional investment products are coming down. As private equity firms, alternative managers, and retirement plan providers seek common ground, wealth advisors must stay ahead of the curve.
The appeal of private equity—higher historical returns, differentiated exposures, and portfolio diversification—is real. But so are the risks: illiquidity, complexity, cost, and valuation opacity. For most retirement savers, those trade-offs are hard to justify.
For advisors, the challenge will be balancing innovation with prudence. The question isn’t simply whether private equity belongs in a 401(k)—it’s how to ensure that if it does, it serves participants’ best interests. That means transparent structures, appropriate allocation limits, and education that demystifies an asset class built on opacity.
In the end, private equity’s push into retirement plans is less about improving outcomes for everyday investors and more about addressing liquidity bottlenecks for an industry under pressure. Advisors who understand both sides of that equation will be best positioned to guide clients—and sponsors—through the next phase of this evolving landscape.
