Trump to allow 401(k)s to invest in private equity: report

The Trump administration is finalizing an executive order that would clear the way for 401(k) retirement savings plans to invest in private equity, according to a report. 

President Donald Trump is expected to sign the directive soon, though the details are still under discussion and no official date has been set for an announcement, the Wall Street Journal reported on Wednesday. 

If enacted, the move would represent a major victory for the private equity industry, which has been lobbying for access to the estimated $12.5 trillion currently held in 401(k) accounts.  

It would also mark the most aggressive step yet by the Trump administration to integrate private equity into retirement plans. 

For months, top officials in Washington have been weighing how to ease the legal concerns that have traditionally kept alternative assets like private equity out of most defined-contribution plans.

Retirement portfolios have long been dominated by stocks and bonds, in part because corporate plan administrators are wary of investing in illiquid and complex financial products that carry higher risks. 

The forthcoming directive would build on earlier measures from Trump’s first term. Those included Department of Labor guidance stating that retirement plan administrators would not be violating their fiduciary duties if they opted to include private equity in their portfolios.  

That guidance was later rolled back by the Biden administration. 

Both alternative and traditional asset managers are seeking a foothold in the defined-contribution space, which they view as a major growth opportunity.  

As institutional investors such as US pension funds and endowments reach the limits of how much they can invest in private equity, managers are eyeing the 401(k) market amid a broader slowdown in dealmaking and reduced distributions to clients. 

Proponents argue that allowing 401(k) plans to invest in private markets would give savers a broader range of investment choices and the potential for greater long-term returns.

However, the higher risks and steeper fees associated with such assets have raised concerns. Critics warn that plan administrators could face increased legal exposure if investments perform poorly or fees eat into retirement savings. 

Money managers have sought to convince policymakers that retirement portfolios are out of sync with the evolving financial landscape.  

They point to the sharp decline in the number of publicly traded US firms since the 1990s and the simultaneous surge in private equity assets, which more than doubled in the decade ending in 2023. 

Advocates for change argue that the shrinking public markets mean many investment opportunities are now found in the private realm.  

By opening up 401(k) plans to private equity, they contend, everyday savers could benefit from opportunities that have traditionally been reserved for institutional investors. 

The Post has sought comment from the White House.