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President Trump signed an executive order Thursday 8/7 to allow 401(k) participants to invest 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The directive instructs the Department of Labor and the Securities and Exchange Commission to draft guidance for defined-contribution plans to incorporate private-market investments, including private equity, venture capital, hedge funds, real estate, and possibly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.
Plan sponsors are not required to offer these investments-and I hope they don’t. This is a bad, short-sighted idea.
That’s all we need in 401k plans, more complexity, more choices few people understand. The idea is participants can achieve better growth on investments.
More like the other side of the coin and bigger losses.
Most plan sponsors aren’t going to go through the risks and costs to offer these offerings.
Hopefully.
If you were a private-equity house, chopping up deals into parcels to sell to investors, what sorts of deals would you offer small retail investors?
I would say you would be most likely to reserve the best deals for your wealthy private clients, who are putting up $500 million or $300 million. The junk, you can sell to retail investors, or maybe Japanese banks – somebody who will fall for any pitch.
I’m with you, Mr. Quinn. Allowing investments without reliable performance histories and full disclosures will be an invitation for bad people to get into the pension and retirement savings game, and for even good people to limit disclosures and add much broader caveats to investment agreements to protect themselves. Lowered standards will inevitably lead to bad conduct, misrepresentation and/or fraud, and maybe just a lot of bad mistakes. Ultimately, there will be many instances of great harm to individual investors. I can see the class actions now, and, unfortunately, the penniless citizens who will have no realistic avenue for relief.