President Donald Trump is reportedly set to sign an executive order that would make it easier for U.S. retirement plans to invest in private-market assets.
What Happened: The executive order, expected to be signed in the next few days, would direct the Labor Department and the Securities and Exchange Commission to issue guidance for employers and plan administrators on incorporating investments such as private assets into 401(k) plans, reported the Wall Street Journal.
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The order is still under review and its details are not yet final. If implemented, it could potentially allow large private asset managers such as Apollo Global Management (NYSE:APO) and Blackstone (NYSE:BX) to tap into the significant retirement savings held by workers without traditional pensions.
Although some retirement plan sponsors already allocate funds to private investments, many remain wary of potential employee lawsuits stemming from the higher fees tied to private-market products.
Industry executives believe that additional steps, such as action by Congress, will be needed to make companies more comfortable with including private-asset funds in employees’ retirement plans.
Private-market fund managers have been urging the Trump administration to relax rules to allow easier inclusion of their products in retirement portfolios. Firms such as Apollo and State Street (NYSE:STT) have already launched target-date funds that incorporate a private-markets component.
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Why It Matters: In May, the Financial Times reported that the Trump administration was considering a potential directive involving private funds in 401(k) retirement plans.
The move to open 401(k)s to private markets comes amid increasing interest in private-market investments and reports of the world’s super-rich have shown a growing affinity for private credit offerings.
However, the decision to offer private equity as an investment option in workplace retirement plans has been met with criticism. Senator Elizabeth Warren (D-Mass) has challenged Empower, a major retirement plan provider, over its decision to include private equity investments for their employees.
Despite the criticism, Empower CEO Ed Murphy has defended the move, likening it to the introduction of 401(k) plans decades ago and emphasizing the importance of making private markets more accessible.
