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The Donald Trump administration is debating an executive order that could open up the nearly $9 billion retirement market for U.S. retirement cities to private capital groups focusing on corporate acquisitions, real estate and other high-octane transactions.
The order directs agencies such as the Department of Labor and the Securities and Exchange Commission to study the possibility of launching the 401K plan, a major tool for US retirement savings.
Trump opened the door to private capital access to American retirement savings in his first term, but few companies proceeded with the offer out of concern about liability risk. This order, if issued, gives retirement fund managers more coverage to expand access to private investments and opens long-recruited sources of funding by the world’s largest private capital groups, including Blackstone, Apollo and KKR.
The industry’s top executives predict that by funding 401k retirement plans, they could attract hundreds of millions of dollars in new industry assets.
While Trump administration officials discuss potential order, no decisions have been made, and any movement could be far apart. The White House declined to comment, and the Treasury Department did not respond to requests for comment.
Still, the top regulators of the administration are already taking action to open individual retirement plans for individual equity funds.
On Monday, SEC chair Paul Atkins said the regulator would “reconsider” previous restrictions on certain funds that hold more than 15% of their assets in private investments. He said the effort “gives all investors the ability to seek exposure to key asset classes that grow, while providing investor protection given to registered funds.”
In the US, the 401k plan is one of the most popular ways for working Americans to save for retirement, allowing part of their salary to invest in publicly available securities free.
Americans tend to focus on equities, bonds and mutual funds, as these plans are barely exposed to private capital funds. At the same time, the private capital industry has struggled in recent years to raise new funds from institutional investors, such as pensions and donations.
Pushing to reduce savings plans poses risks such as higher fees and overall leverage, along with pushing to less liquid private assets, along with less transparency in fund assets valuation.
However, private equity bosses such as Apollo’s Mark Rowan say the possibility of gaining higher returns from less liquid private investments and exposure to a broader mix of assets is perfect for a retirement saver who aims to grow assets for decades.
In the final months of Trump’s first presidency, the Labor Department issued a policy that allowed private equity investments to become part of certain retirement-oriented funds with a long investment horizon.
The guidance amounted to a shift in fork from previous restrictions, but large asset managers overseeing retirement funds were hesitant to adopt the changes. Industry executives, lobbyists and legal counsel said the retirement fund manager was afraid to be sued for potential violations of the law that imposes fiduciary duties on such plans.
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However, further policy directives under Trump’s federal regulators, such as the SEC, or laws from the US Congress, could give asset managers additional protection and provide private equity investments in the 401K plan, industry executives said.
The largest group in the private capital industry has already begun partnering with asset managers who rely on millions of retirement savers.
Blackstone, KKR and Apollo have recently aimed to provide formal partnerships with large asset managers such as Vanguard, Capital Group and State Street to provide individual investments to larger investors. Last week, Empower, one of the largest 401K plan sponsors in the United States, signed an agreement to begin offering Apollo, Partners Group, Goldman Sachs and other alternative funds to participants in their retirement plans.
Additional Reports by Alex Rogers of Washington
