‘Disaster in the Making’: Trump to Open 401(k)s to Crypto, Private Equity Vultures

Yves here. Private equity has been trying for many years to get their products sold to retail investors. Trump has greatly lowered the bar with his executive order.

However (and I do not want to sound like a Pollyanna) but if the private equity part was as easy as a Presidential stroke of a pen, it would have happened already. Selling a financial product to retail investors requires considerably more financial reporting and compliance. That involves another layer of fees and costs when private equity is already pulling out so much in fees and costs as to make private equity less attractive on a risk-return basis than stocks.

That is not to say that the new SEC chair won’t try to bend the rules. See our May post: New SEC Chief on Board with Letting Retail Chumps Invest in Private Equity Even as Pros Like Kuwait Sovereign Wealth Fund Sound Red Alert

But see some of our many posts on private equity’s overstated performance, and the fact that many investors are finally waking up:

Private Equity Pummeled by Higher Interest Rates as Portfolio Companies and Credit Funds Struggle; Use of PIK Loans Now Recalls Late 1980s LBO Crisis

Billionaire Blasts Private Equity’s Continued Grifting as Performance Falls Further

Private Equity Becomes Roach Motel as Public Pension Funds and Other Investors Borrow As Funds Remain Tied Up

Private Equity Seeks to Foist Companies It Can’t Sell on Employees

As CalPERS Doubles Down on Private Equity, New Analysis Finds CalPERS’ Private Equity Returns “Based on a Mirage;” Another Study Reaffirms that Private Equity Drags Down Performance

And that’s before getting to how private equity rentierism is destructive to the public. There is plenty where this came from:

Private Equity on Campus: Why College Students Are Sleeping in Cars

Buy and Bust: Collapse of Private Equity-Backed Rural Hospitals Mired Employees in Medical Bills

Fed Hawkishness, Crypto Implosion, and Private Equity Subscription Lines of Credit Imperil Silicon Valley Bank and Freak Out Bank Stock Investors

Plunder: Private Equity’s Plan to Pillage America

But it seems inevitable that retail retirement assets will become the last chumps for both PE and crypto. The only question is to what degree.

By Jake Johnson, staff writer for Common Dreams. Originally published at Common Dreams

U.S. President Donald Trump is expected to sign an executive order on Thursday that would allow private equity and cryptocurrencies into Americans’ 401(k)s, appeasing corporate interests that lobbied for the change and disregarding warnings about the risks it poses to retirement accounts.

Citing an unnamed senior White House official, CNN reported that “the order calls for the Labor Department and Securities and Exchange Commission to issue guidance to employers about providing access to those alternative investments in their retirement accounts.”

The private equity industry has been working for years to gain access to a portion of the roughly $12 trillion that Americans have saved in workplace retirement plans.

“This is the holy grail for private equity,” Axios reported Thursday, noting that federal rules currently bar most defined-contribution plans from investing in private equity and crypto. Both industries spent big on the 2024 election; the investment management behemoth BlackRock, whose CEO has advocated opening 401(k)s to private equity, donated to Trump’s inaugural committee.

James Baratta and Whitney Curry Wimbish noted in The American Prospect earlier this year that “there was added desperation from the industry” for access to 401(k)s “because of their dire need for cash amid weakening performance and fewer deals.”

“Some firms have begun mortgaging their own funds for money to pay out limited partners,” they added. “Retail investors represented trillions in untapped potential.”

Helaine Olen, managing editor at the American Economic Liberties Project and a longtime personal finance columnist, said in a statement Thursday that “stuffing private equity, crypto, and other ‘alternative assets’ into 401(k)s is about propping up scams and bailing out an industry that’s run out of buyers—and it’s being done at the expense of Americans’ retirements everywhere.”

“There’s a reason most employers didn’t bite when Trump tried this the first time and why the private investments industry has put on such a thick lobbying campaign,” said Olen. “These funds are high-fee, risky, and opaque. Private equity consistently underperforms the S&P 500. This is a windfall for billionaire fund managers and a disaster in the making for regular Americans trying to save for retirement.”

Last week, the Americans for Financial Reform Education Fund and American Federation of Teachers released a report warning that if private equity is given a foothold in 401(k)s, “millions of workers saving for retirement would be exposed to higher risks and steep fees in products that lack basic investor protections and transparency requirements.”

The report found that private equity profitability “has been in a year-over-year decline” for the past two decades and that “fee structures—paid directly by investors or indirectly through portfolio companies—are prone to extensive manipulation.”

Lisa Donner, co-executive director at Americans for Financial Reform Education Fund, said that “private equity executives have enriched themselves by the billions, taking high fees and other charges from working people’s hard-earned retirement savings in pension funds.”

“Now they want fees from the trillions of dollars in individual retirement accounts,” Donner added, “putting millions of more people at risk.”