For the vast majority of workers this not good, but it is a reflection of the naive understanding of human behavior and individual financial literacy by the Trump administration.
It also reflect the flawed ideology of individual empowerment and responsibility – something that would be nice to have, but only resides in a fantasy world.
President Trump signed an executive order Thursday 8/7 that will open the doors for 401(k) retirement investors to stash their savings in private assets.
The directive instructs the Department of Labor and the Securities and Exchange Commission to draft guidance for defined-contribution plans to incorporate private-market investments, including private equity, venture capital, hedge funds, real estate, and possibly gold and crypto.
Backers say the shift offers diversification from plain vanilla stocks and bonds and potential juiced-up returns over time.
All well and good, but they come with red flags for retirement savers.
Source: Yahoo
(And potential greater loses by workers who do not understand the investment or the risk.)
Including these investments is not prudent. We can only hope plan sponsors don’t take the bait.
QUINNSCOMMENTARY 
Given the account balance, wealth/debt, age, tenure, and liquidity needs of most 401k participants, adding private equity and other such investements would be a mistake.
My knowledge of securities is limited:
(1) Private Equity (PE) lifecycle typically 4 – 7 years, limiting liquidity,
(2) ERISA does not preempt other federal laws. Federal laws that apply to such investments include various securities laws (’33, ’34, Investment Advisors Act of 1940, Investment Company Act of 1940). So, “accredited investor” limits would probably need to be the same even though the investment was in a tax-qualified plan subject to ERISA.
“Accredited investors”:
So, it seems that a PE investment in a 401k would have to have a unique structure to account for unique liquidity and ensure accreditation.
Perhaps something patterned after a “Bullet GIC” – whee the investment is only made available via directed brokerage, and only made available to “accredited investors” who are verified at the time of purchase, where the principal is committed for the entire lifecycle (up to 7 years, can be returned sooner), and where principal and earnings are paid as a single sum.
The individual electing such an investment should be the sole bearer of the same risks, whether or not in a 401k.
Here is what someone posted in England, when they became aware of the executive order:
“… Private markets – have been suffering significant liquidity shortage issues – and valuations are often highly questionable – which have resulted in a plethora of continuation vehicles (better known as extend and pretend) including most recently a spate of ‘evergreen’ funds (that is perpetual funds). Secondary funds buy PE assets at discounts ranging from around 5% to 50% or more of their published NAVs. But when sold to ‘evergreen’ funds these holdings are valued by most funds at NAV. Lovely ‘business’ for the managers of these ‘evergreen’ funds and miraculous gains for the secondary funds.
Lambs to the slaughter comes to mind in the case of 401K savers. …”
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Al Lindquist
was skeptical at first and probably not my cup of tea at my age–then I came across a profile of David Swensen the fabled money manager who guided the Yale endowment for 35-years. Seems like Yale took the bait and now endowments college wide do the same thing.
using private equity and alternative assets over 35-years he outperformed the traditional 60/40 stock -bond allocation by 4.3% per annum. Cambridge Associates estimates he added $36.0 billion in value to Yale’s endowment.
Assuming the 401-k is administered by say Vanguard–Fidelity–BlackRock they will select, as they do now, the hedge fund (s)–private equity and alternative investments to use. They will meet criteria set by these folks as they do now with 401-k selections.
this is the usual baloney we get from those who suffer from TDS–the average person is just too stupid to make decisions so just select the life cycle fund appropriate for your circumstance.–as Swensen proved there are a vast array of choices for one to invest their money–in this case maybe a Vanguard fund that holds a % of alternative investments–
good for Trump for allowing a greater selection of investment alternatives, it’s not only the rich that should be able to invest in these vehicles and doing it through a Vanguard or Fidelity makes sense to me.
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Sounds like we’ll have to keep an eye on our 401k investments in the future. Wonder if this affects IRAs
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Only concern if your plan sponsor adds those options and you choose to invest in private investments.
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Good to know for any future changes.
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