- Trump’s order could unlock trillions for alternative assets in 401(k) plans.
- Legal risks and investor protection concerns may slow adoption of new investments.
- Major firms like Blackstone and BlackRock aim to tap retail retirement savings.
U.S. President Donald Trump is expected to sign an executive order expanding the range of investment options available in 401(k) retirement accounts to include private equity, real estate, cryptocurrency, and other alternative assets. The order seeks to adjust regulatory policies across multiple federal agencies, possibly unlocking trillions of dollars from Americans’ retirement savings for use in alternative asset markets.
The executive order instructs the Securities and Exchange Commission (SEC) to revisit existing regulations and guidance related to participant-directed defined contribution retirement plans. The Labor Secretary will coordinate with counterparts in the Treasury Department, SEC, and other federal regulators to assess whether parallel regulatory updates are necessary. This joint effort intends to simplify access to alternative assets within 401(k) and similar retirement accounts.
Current retirement portfolios largely focus on publicly traded stocks, bonds, and cash equivalents. Alternative investments often involve private equity funds, real estate holdings, and cryptocurrencies, which have less strict disclosure requirements and are generally harder to liquidate quickly.
Potential Impact on Asset Managers and Retirement Savers
Allowing alternative asset investments in defined contribution plans opens a $12 trillion market to fund managers specializing in these assets. Major firms such as Blackstone, KKR, and Apollo Global Management are expected to gain new sources of capital by tapping into retail retirement savings.
Additionally, defined contribution plans differ from traditional pensions in that employees contribute and manage their own retirement funds, often with some employer matching. Unlike defined benefit plans, these accounts do not guarantee fixed payouts at retirement, shifting investment risk to individual participants.
Industry experts note that while the order could provide new growth opportunities for private equity and alternative asset managers, the transition may be gradual. Litigation risk remains a significant concern, with some investors potentially unaware of the complexities and risks associated with alternative investments. Lawsuits could arise from participants who experience losses or misunderstand the nature of their investments.
Industry Response and Concerns
BlackRock, the world’s largest asset manager, has announced plans to launch a retirement fund incorporating private equity and private credit assets. However, BlackRock’s CEO, Larry Fink, acknowledged the possibility of legal risks and operational challenges that accompany such changes.
The Department of Labor had earlier provided guidance under the Trump administration, permitting some investments in private equities in retirement plans. Regardless, adoption was low as legal exposure and regulatory uncertainty lingered.
Other policy makers have raised concerns regarding using alternative investments in retirement accounts. In June, Democratic Senator Elizabeth Warren wrote to the CEO of Empower Retirement, a large annuity provider with over US$1.8 trillion in assets, asking how its government-controlled retirement fund investments were shielded against possible transparency, investor protection, and excessive fees issues, as well as fraudulent assertions of guaranteed returns.
