<p>-
- USA TODAY and Yahoo may earn commission from links in this article. Pricing and availability subject to change.Private equity is coming to your 401(k). Are the rewards worth the risk?</p>
<p>Daniel de Visé, USA TODAYJuly 17, 2025 at 4:01 AM</p>
<p>In the past, the private equity world has been largely populated by ultra-rich investors, endowments and pension funds. That may be about to change.</p>
<p>Retirement savers with 401(k) accounts are gaining access to the private investment market, which mostly pivots on privately held companies, rather than public ones.</p>
<p>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 it will offer private investments in some workplace accounts later this year. Other retirement plan providers have made similar moves.</p>
<p>And the Trump Administration is expected to sign an executive order in coming days that would call for federal guidance on adding private investments to 401(k) plans, the Wall Street Journal reports.</p>
<p>Firms that invest in private assets are pushing to gain access to 401(k)s and other "defined-contribution" workplace retirement plans, a $12 trillion market.</p>
<p>Private equity firms raise money to buy, manage and sell companies for profit. Investors are typically high-wealth individuals or institutions. The private credit marketplace loans money to companies or individuals outside the banking and fixed-income industries.</p>
<p>Regular retirement savers haven't had much access to private investments in the past. The minimum investment in a private equity fund might be in the millions, or at least the hundreds of thousands, according to Investopedia. Your money might be tied up for years.</p>
<p>FILE PHOTO: The BlackRock logo is pictured outside their headquarters in the Manhattan borough of New York City, New York, U.S., May 25, 2021.Here's why wealthy investors like private equity</p>
<p>But there's a reason why wealthy investors and endowment managers like private equity funds.</p>
<p>In recent decades, "they actually have done better than the stock market by 1 to 2 percentage points," said Robert Brokamp, a senior adviser at The Motley Fool.</p>
<p>Private equity yielded average annual returns of 10.5% from 2000 through 2020, Investopedia reports. Other estimates range higher. Private equity is considered a high-risk, high-return alternative to the stock market, which, of course, carries its own risks.</p>
<p>"Why do wealthy people like it? Because it has the highest upside," said Keith Singer, a certified financial planner in Boca Raton, Florida.</p>
<p>Along with the upside comes a steep downside.</p>
<p>Private companies face fewer regulations and reporting requirements than public ones. It can be hard to divine how much money a private company earns.</p>
<p>"These are private companies, and with that comes less transparency," Brokamp said. "That's part of the reason people stay private: They don't want to do all the regulatory filings that come with going public."</p>
<p>The number of public companies has dropped "by about half" since the mid-1990s, Brokamp said. Private companies tend to stay private longer, and to do public stock offerings later.</p>
<p>FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., June 5, 2025.Stocks are risky. Private equity can be riskier.</p>
<p>Stocks carry risk, but a retirement saver who puts money in a S&P 500 index fund is "investing in some pretty well-established companies," Brokamp said.</p>
<p>Private equity, by contrast, often involves companies in distress. Bankruptcies run higher.</p>
<p>"Private equity is riskier than public equity," said Caleb Silver, editor in chief of Investopedia. "It's more speculative in nature, because you are investing in companies that, in some cases, have no proven track record."</p>
<p>Given the risk, Silver suggests an everyday retirement saver should not invest "more than 10% of your portfolio" in private investments: "It's simply too risky."</p>
<p>Some of the emerging 401(k) offerings seem tailored to manage that risk. BlackRock, for example, plans to offer private investments within a broader target-date retirement fund.</p>
<p>Target-date funds generally offer a mix of stocks, bonds and other investments, with the mix growing more conservative as you approach retirement. The new BlackRock fund would allocate only 5% to 20% of its holdings to private investments, with the quotient dropping as you age.</p>
<p>Private equity tends to be illiquid: Investors generally see their money tied up for months or years. In a 401(k), by contrast, you can typically buy or sell investments daily.</p>
<p>That should be less of a concern, though, when private equity sits in a target-date fund, which includes publicly traded investments that can be sold if an investor wants out.</p>
<p>In 2020, the Trump Administration issued an "Information Letter" instructing that 401(k)-type retirement plans could invest in private equity without violating federal regulations. The law requires 401(k) managers to act in the best interest of investors, protecting them from large losses and excessive fees.</p>
<p>Retirement savers with 401(k) plans are gaining access to private investments.Is private equity too risky for retirement savers?</p>
<p>Some observers fear, however, that the risks of private investment may be too steep for everyday retirement savers.</p>
<p>Last month, Sen. Elizabeth Warren (D-Massachusetts) penned a letter to the CEO of Empower about its plan to offer private investments in 401(k) accounts.</p>
<p>"Given the sector's weak investor protections, its lack of transparency, expensive management fees, and unsubstantiated claims of high returns, we are seeking information on how your company will ensure the safety of the billions of dollars of retirement savings it safeguards as it implements this program," Warren wrote.</p>
<p>Empower responded, in essence, that retirement savers deserve a crack at the lucrative private investment market, after decades of exclusion.</p>
<p>"Empower believes in the democratization of private investing," wrote Edmund F. Murphy III, the Empower CEO.</p>
<p>Even so, leaders of the 401(k) industry will "feel more comfortable" about private investments if Congress approves legislation that explicitly allows it, said Thomas Gahan, managing director of Procyon Partners, a financial advisory firm in Shelton, Connecticut.</p>
<p>Gahan predicts more 401(k) providers will offer private investments as an option in the target-date funds, as BlackRock plans to do. "I think it's a stepping stone," he said.</p>
<p>The 401k industry may eventually allow any retirement saver to invest in funds made up entirely of private investments, Gahan said, but probably not without legislation that explicitly permits the investments -- or an executive order from Trump.</p>
<p>"This will happen over time," he said, "not overnight."</p>
<p>This article originally appeared on USA TODAY: Private equity is coming to your 401(k). Just how risky is it?</p>
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