The US wants to open retirement savings plans to private equity, unlocking a new multi-trillion-dollar market for the sector. The White House calls it much-needed “democratization”; critics say it is a political favor that will leave savers worse off.
“The risk is being shifted to individuals who are least able to bear it,” warned former federal prosecutor Brendan Ballou, author of the bestseller Plunder, which describes how private equity is reshaping the American economy. He argued that ordinary savers risk getting trapped in expensive, risky, and opaque investments whose long-term consequences are poorly understood.
“This has nothing to do with helping savers. The private equity industry has been trying for years to gain access to people’s 401(k)s, and this looks more like a reward for its political influence,” he told Investment Officer.
Ballou (pictured) is sounding the alarm about a new presidential order from Donald Trump that instructs regulators to make it easier for employer-sponsored retirement savings plans—so-called 401(k)s—to invest in private equity, private credit, and crypto. That is welcome news for private market funds, which have long sought access to the 12 trillion dollars sitting in these tax-advantaged accounts.
Risk of lawsuits
According to the order, the goal is to make “alternative assets” more accessible and to reduce the liability risk for 401(k) plan managers if they offer private market investments. So far, the threat of lawsuits has kept many employers from doing so.
The Securities and Exchange Commission (SEC) has also been tasked with reviewing whether the threshold for “accredited investors” can be lowered, allowing ordinary savers to participate directly in private market products.
In a presentation last week, the White House Council of Economic Advisers argued that allocating 20 percent of 401(k) assets to private equity could boost US economic growth by 0.12 percentage points. The Department of Labor has already scrapped Biden-era guidelines that discouraged such investments; new rules are expected in early 2026.
Ballou, however, warned that introducing alternative assets could destabilize the financial system. “The fact that the industry reportedly struggles to produce reliable credit ratings, or relies on second-tier agencies, could trigger a confidence crisis that impacts the entire sector,” he said.
Institutional knowledge
European pension funds—especially in the Netherlands—have long invested in private equity to boost long-term returns. But those are large institutional players with scale and expertise. “There’s a world of difference between Dutch pension funds with institutional knowledge and millions of Americans being asked to pick a private equity fund from a menu,” said Sandor Steverink, senior investment consultant at Willis Towers Watson. “If you let retail investors into private equity through their 401(k)s, that can cause problems.”
At the Wharton School, finance professor Bilge Yilmaz, head of the private equity program, takes a more nuanced view. In theory, he said, 401(k) savers should be able to benefit from the “illiquidity premium” that institutional pension funds enjoy. “A large share of value creation in the economy now takes place in private markets,” said Yilmaz. “Retail savers don’t necessarily need to be excluded from that.”
But he stressed that this only works with strong safeguards, professional oversight, and diversified structures. “With exits slowing and continuation funds becoming more common, inexperienced savers risk paying high fees without getting better returns.” Education and thoughtful product design, he said, are essential.
Definition of ‘prudent’
A 401(k) is part retirement plan, part individual investment account. Employees contribute money, sometimes with an employer match, and then choose from a list of approved funds. Under the 1974 ERISA law, employers are required to offer “prudent” investments. As Bloomberg columnist Matt Levine noted, savers cannot use their 401(k)s “to bet on sports games or invest in their brother-in-law’s business.” Typically, they opt for low-cost index funds and bonds.
Those limited choices are described as “restrictions” in the presidential order, which argues that workers should have access to higher private market returns. That is why the Department of Labor has been directed to take a looser view of fiduciary duties under ERISA.
“How that law is interpreted determines how much risk 401(k) managers are allowed to take,” said Ballou. “If they’re shielded from liability, they’ll care less about risky projects, because the downside is limited if things go wrong.” In his view, the private equity product itself has not changed. “It’s simply that a different group of policymakers now embraces these products and is redefining prudent behavior to fit.”
Zombie funds
US 401(k) accounts hold around 12 trillion dollars—far more than the entire global private equity market. “Private equity investments have matured as an asset class and deliver excellent long-term returns, so this is good news for Americans,” said Simon Tang, head of US operations at Accelex, a provider of private market data management technology.
Ballou remains skeptical about the decree’s benefits. With exits becoming harder and the number of so-called zombie funds rising—where managers sell companies back to themselves—he fears retail inflows mainly serve to prop up a stressed sector. “In the 1920s, American retail investors bought opaque products without any disclosure,” he recalled. “That ended badly. The question is whether it will turn out any differently now, simply because it’s being called ‘democratization’.”