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Donald Trump’s administration is debating an executive order that could open the nearly $9tn US retirement market to private capital groups focused on corporate takeovers, property and other high-octane deals.
The order would instruct agencies such as the departments of labour and Treasury and the Securities and Exchange Commission to study the feasibility of opening 401k plans, a primary vehicle for US retirement savings, to the private funds, according to four sources familiar with the talks.
Trump opened the door for private capital access to American retirement savings in his first term, but few firms have moved ahead with the offering out of concern for liability risk. The order, if issued, would give retirement fund managers more cover to expand access to private investments — while opening a source of funding long coveted by the world’s largest private capital groups, including Blackstone, Apollo and KKR.
Top industry executives predict that offering their funds to 401k retirement plans could attract hundreds of billions of dollars in new industry assets.
While Trump administration officials are discussing the potential order, no decisions have been made and any move could be far off. The White House declined to comment, and the Treasury did not respond to a request for comment.
Still, top regulators in the administration have already taken action to open individual retirement plans to private equity funds.
On Monday, Paul Atkins, chair of the SEC, said the regulator would “reconsider” prior restrictions on certain funds holding more than 15 per cent of their assets in private investments. The effort, he said, would “give all investors the ability to seek exposure to a growing and important asset class, while still providing the investor protections afforded to registered funds”.
In the US, 401k plans are among the most popular ways working Americans save for retirement, allowing them to invest a portion of their salaries in publicly traded securities tax free.
Americans have little exposure to private capital funds in these plans, which tend to focus on stocks, bonds and mutual funds. At the same time, the private capital industry has struggled to raise new money in recent years from institutional investors such as pensions and endowments.
The push to plough savings plans into less liquid private assets carries risks such as higher fees and overall leverage, in addition to less transparency on the valuation of fund assets.
However, private equity bosses such as Apollo’s Marc Rowan have said the potential to earn higher returns from less liquid private investments and exposure to a broader mix of assets is a good match for the time horizon of retirement savers, who aim to grow their assets over decades.
In the final months of Trump’s first presidency, the Department of Labor issued a policy allowing private equity investments to be a part of certain retirement-oriented funds with long investment horizons.
While the guidance amounted to a watershed shift from prior restrictions, large asset managers that oversee retirement funds hesitated to adopt the change. Industry executives, lobbyists and legal advisers said retirement fund managers are fearful of being sued over potential violations of laws that impose fiduciary duties on such plans.
But further policy directives under Trump’s federal regulatory agencies such as the SEC, or legislation from the US Congress, could give added protections to asset managers to offer private equity investments to 401k plans, industry executives said.
The private capital industry’s largest groups have already begun partnering with asset managers relied on by millions of retirement savers.
Blackstone, KKR and Apollo have in recent months formalised partnerships with large asset managers including Vanguard, Capital Group and State Street aiming to offer private investments to a greater swath of investors. Last week, Empower, one of the largest 401k plan sponsors in the US, also struck a deal to begin offering Apollo, Partners Group, Goldman Sachs and other alternative funds to retirement plan participants.
Additional reporting by Alex Rogers in Washington
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