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RDINARY AMERICANS ARE ABOUT TO SEE THE BIGgest change to retirement investing perhaps since 401( k) plans replaced traditional pension plans. President Trump’ s executive order permitting private equity and private credit plans, presumably along with crypto investments, to be included in qualified plans will democratize the investing world— at least in theory.

For at least a decade, prominent people like former Blackstone No. 2 executive Hamilton James have made this argument: that since 401( k) investors in their 20s and 30s were locking their retirement savings away into their 60s, they should be able to enjoy the same benefits of long-term investing— the socalled illiquidity premium— that pensions and the very wealthy do. It was hard to find a flaw in this line of thinking.

Other changes in the American economy have also supported that argument. Since 1996, the number of public companies in the U. S. has shrunk 41 % from 7,300 to 4,300. After the financial crisis, more venture-backed companies have opted to stay private for longer. The upshot is that there are much fewer opportunities to invest today in young public Microsofts and Amazons.

Yet there are also a few major problems with the reasoning of private market advocates.

While it’ s certainly true that they easily outperformed most public markets in the period from 2000 to 2012, over the past decade many private market returns have turned pedestrian and reverted to the mean, partly because trillions have flooded into high-fee private equity, private credit and venture capital funds. Also, many public alternative mutual funds, launched after the financial crisis, have closed in the last decade: Morningstar recently said 1,000 alternative funds, or 75 %, have been liquidated or merged away since 2015.( See Tracey Longo’ s story on page 10.)

At an RIA conference in May, Goldman Sachs’ s president and chief operating officer, John Waldron, said the firm’ s executives were surprised at the strong capital flows into private funds during the pandemic, and he implied that might cause their near-term returns to be subpar. It’ s also notable that some big universities and public pensions are currently selling parts of their private holdings in the secondary markets.

Furthermore, some advisors to the ultra-wealthy have become more dissatisfied as many private equity funds are failing to exit investments in the time frames they claimed they would. The partial stakes in companies are often simply sold to other PE companies and marked up at higher valuations so the PE

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firms can keep charging ongoing management fees. Yet the wealthy investors had been told they’ d be cashed out through an IPO or outright sales of the businesses. At least this is what I’ ve heard from several advisors to disgruntled billionaires.

While no one is playing a violin for these folks, other questions remain. How is the typical 401( k) investor— who is much less wealthy and who is sending $ 500 to $ 1,000 a month to plan sponsors— going to get transparency or liquidity from fractional investments in private companies? One major attraction of qualified plans was their portability and that becomes more complicated.

In fairness to the alternative investments industry, it has shown an ability to adapt. Innovative financial engineers have replaced clunky, costly mutual funds with buffered or defined-outcome ETFs that offer risk-averse investors limited upside to the stock market and downside protection( at a much cheaper cost).

So it’ s possible alternative investment companies can indeed democratize private investments and make it work. Still, the ride is likely to be bumpy.

Evan Simonoff

Email me at esimonoff @ famagazine. com with your opinion.

8 | FINANCIAL ADVISOR MAGAZINE | SEPTEMBER 2025 WWW. FA-MAG. COM