Donald Trump's administration is debating an executive order that could open up nearly 9tn of the U.S. retirement market to private capital groups focused on corporate takeovers, property and other high-octane deals.
According to four sources familiar with the negotiations, the order will direct agencies such as the Labor and Treasury and the Securities and Exchange Commission to study the feasibility of opening the 401K plan, the main tool for U.S. retirement savings, for private funding.
Trump opened the door to private capital for U.S. retirement savings during his first term, but few companies moved forward ahead of time out of concerns about the risk of liability. The order, if issued, would provide more cover for retired fund managers to expand access to private investments, while providing a long-standing source of funding for the world's largest private capital groups, including Blackstone, Apollo and KKR.
Top industry executives predict that funding the 401k retirement plan could attract hundreds of billions of dollars in new industry assets.
When Trump administration officials discuss potential orders, no decision is made and any move can be out of reach. The White House declined to comment, and the Treasury Department did not respond to a request for comment.
Nevertheless, the top regulator in the government has taken action to open individual retirement plans to private equity.
SEC Chairman Paul Atkins said on Monday that regulators will “rethink” prior restrictions on assets holding more than 15% of their assets. The effort will “enable all investors to seek exposure to growing and important asset classes while still providing investor protection for registered capital.”
In the United States, the 401k program is one of the most popular ways Americans can work outside of their jobs, allowing them to invest part of their salary in securities taxes on public transactions.
Among these programs, Americans have little exposure to private capital funds, which tend to focus on stocks, bonds, and mutual funds. Meanwhile, the private capital industry has been working to raise new funds from institutional investors such as pensions and donations in recent years.
In addition to the lower transparency of fund assets, there is a risk of pushing for less private assets that invest less savings plans.
But private equity bosses such as Marc Rowan of Apollo said the potential to get higher returns from fewer private investments and the impact on a wider portfolio are a good match for retired savers who aim to grow their assets over decades.
In the final months of Trump’s first presidency, the Labor Department issued a policy that would allow private equity to become part of certain retirement-oriented funds with a long-term investment horizon.
While the guideline shifted from previous restrictions to a watershed, overseeing retirement funds hesitated to pass the change in large asset managers. Industry executives, lobbyists and legal counsel said retired fund managers are concerned about being prosecuted for possible violations of the law that imposes fiduciary obligations on such plans.
However, asset managers can be provided with more protections to provide private equity investments to the 401K program under further policy directives from Trump’s federal regulators (such as the SEC) or U.S. Congress legislation.
The largest group in the private capital industry has begun working with asset managers that millions of retired depositors rely on.
Blackstone, KKR and Apollo have established partnerships with large asset managers including Vanguard, Capital Group and State Street in recent months, aiming to provide private investments to more investors. Last week, Empower, one of the largest 401K program sponsors in the United States, also concluded a deal to start providing retirement plan participants with Apollo, Partner Group, Goldman Sachs and other alternative funds.
Other reports by Alex Rogers, Washington