Private equity ready for Trump order endorsing alternative investment in 401(k)s

A great quarter for private equity giants got even better Thursday with President Donald Trump expected to sign an executive order blessing the inclusion of alternative investments into 401(k)s and other retirement plans.

Massive PE firms like Apollo Global Management, Blackstone and KKR spent good portions of second-quarter earnings calls reminding Wall Street analysts and investors of what they can do with access to retirement accounts.

Firms stepped up lobbying since Trump won the November election for access to the more than $12 trillion market in defined-contribution workplace savings plans.

Trump’s executive 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, CNN reported Thursday morning.

There is no law prohibiting plan sponsors from offering private market investments to employees. But plan sponsors have traditionally avoided those offerings because of their fiduciary duty in a highly litigious retirement plan space.

But Connor Teskey, president of Brookfield Asset Management, said the order “could accelerate” the shift to alternative investments.

“Even a modest reallocation could result in hundreds of billions to trillions of net new flows into alternatives over time,” he added during a Wednesday call with analysts.

Like most of the large PE firms, Brookfield has a diverse book of investment offerings that includes a life and annuity provider, American Equity. Brookfield manages an approximately $100 billion portfolio of annuities.

On the hunt

Last week, Brookfield Wealth Solutions acquired Just Group, a financial services firm in the UK, in a deal valued at $3.2 billion. In a Wednesday letter to shareholders, Brookfield touted its diverse portfolio and stated that it is targeting retirement accounts.

“Individual investors are looking for reliable investment outcomes,” said the letter signed by Teskey and CEO Bruce Flatt. “[T]hey want portfolios that can withstand volatility while compounding over time. We believe no other business has the track record in the diversified products which will drive the future of retirement accounts, like we do.”

Earlier in the week, Apollo CEO Marc Rowan waxed poetically about the lure of retirement account dollars.

“Everywhere in the world where private assets have been added to public portfolios, you've gotten better outcomes,” he told analysts. “[I]t's not little bit better outcomes, it's 15 to 100 percent better outcomes. This is not something that we need to sell.

“Plan sponsors, members of the ecosystem along the way, they understand this, and for the most part, they would like to include a more diverse set of assets with higher returns for retirees to build for their nest egg.”

New products emerge

Many PE firms are already aiming unique products at the retirement plan market.

BlackRock, the world’s largest asset manager, announced in June that it will offer a 401(k) target-date retirement fund that includes private investments, with a launch date in 2026. Another retirement giant, Empower, said in May that it will offer private investments in some workplace accounts later this year. Other retirement plan providers have made similar moves.

Trump’s executive order won’t change policy, but clarifies his position to the rest of the government, Jaret Seiberg, a financial services policy analyst at TD Cowen Washington Research Group, said in a research note.

That’s one reason why Seiberg doesn’t expect immediate changes to result from it. “It will still require the agencies to craft new rules. That could take into 2026,” he said.

New rules will surely require plan sponsors to conduct conventional due diligence about any new investment offerings.

Private equity yielded average annual returns of 10.5% from 2000 to 2020, according to Investopedia. But critics note that private companies face fewer regulations and reporting requirements than public ones, and come with much higher risks.

Wire reports contributed to this story.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.