Are Private Investments Coming to Your 401(k)?

In August, the Trump administration issued an executive order that may open the door for alternative investments—including private equity, real estate and cryptocurrency—to become options in employer-sponsored retirement plans like 401(k)s. This represents a significant shift from the traditional stocks, bonds and mutual funds most savers are familiar with, so it’s important to understand the opportunities and risks this change may bring.

To put this development in context, Americans currently hold $12.2 trillion in defined contribution plans like 401(k)s as of the first quarter of 2025, according to the Investment Company Institute. Meanwhile, U.S. private equity firms manage approximately $3.1 trillion in assets, representing a substantial alternative investment market that has historically been out of reach for most retirement savers.

As you might expect, the media and pundits have been sharing a wide range of views, from alarmist to exuberant. We think access to these investments will be an overall positive development though the implementation may involve some growing pains. An expanded investment universe is a good thing for investors—with it may come the need for more guidance for individuals hoping to navigate this wider array of options (which they can take or leave) on their own. Let’s dive in, starting with some of the risks involved.

Potential Risk Factors

While public market investments have seen fees compress over the years as transacting trades has become far more efficient, the hands-on nature of private investments means these typically carry higher fee structures than traditional mutual funds or ETFs—often significantly higher. These fees go toward covering the costs of deal sourcing, due diligence, and often multi-year engagement and oversight of the actual investments. As a result, management fees and performance-based charges may impact net returns over time.

There’s also the question of investment quality. While wealthy individuals and institutions often have access to top-tier private investment opportunities, the products eventually offered to 401(k) participants may not necessarily be the same caliber. There are only so many good companies to invest in, and with more dollars entering this part of the market it could water down the opportunity set. This risk is not unique to private investments—stock and bond mutual funds and ETFs also run the gamut from excellent to substandard.

The complexity of selecting quality private investment managers requires significant expertise and resources that individual investors typically don’t possess. But that’s where your RWA team can help.

Private Investment Opportunities

Historically, private market investments have been the domain of large institutional investors like university endowments and public pension funds. These sophisticated investors have long been drawn to the differentiated and enhanced returns that private investments can offer, going beyond what’s available in public markets. As more money has found its way to private markets, it has allowed companies to remain private longer (in some cases indefinitely) and still meet their growth goals without rushing to market through an initial public offering. This means those early and even some late-stage returns have gone to private investors, excluding individual retirement savers from these opportunities.

Take the technology and AI space, where public markets are increasingly dominated by a few mega-cap leaders such as NVIDIA, Microsoft and Google. Meanwhile, much of the next wave of growth is being captured in private markets. OpenAI recently raised funds at a $300 billion valuation and Anthropic was valued above $183 billion earlier this month—both are still privately held. These examples show how much growth and innovation is occurring long before companies reach the public stock market.

For this reason, the potential benefits in this space are compelling. Private investments often provide access to what experts call the illiquidity premium—the additional returns investors may receive for tying up their money for longer periods. For 401(k) participants, who are typically investing for decades until retirement, illiquidity may be less problematic than it would be for investors who might need on-demand access to their funds.

Additionally, private markets can offer exposure to sectors and investment strategies that are more conducive to long-term, less liquid investments like infrastructure. These options simply are not available in public markets, potentially improving overall portfolio construction and long-term returns. And just like in the mutual fund space, you can find skilled asset managers running private market offerings.

An Uncertain Timeline

We should note that this executive order won’t automatically add private investments to your 401(k) plan tomorrow. The order directs federal agencies to create a framework that would allow such investments, but individual employers and their plan administrators will ultimately decide whether to offer these options to their employees.

Plan sponsors have fiduciary responsibilities to act in their participants’ best interests, and they must carefully evaluate whether adding complex investment options serves their workforce well. Many employers may choose to stick with traditional investment menus, at least initially, given the additional complexity and potential liability these alternatives might introduce.

Allocating to Private Investments in Your Plan

We think greater access, overall, is a net positive for informed investors. Our best advice is to make sure you understand what you’re buying before putting your hard-earned retirement savings at stake.

If private investment options do become available in your workplace retirement plan, your RWA team can help you evaluate the choices and decide how much may be appropriate to allocate. This recommendation will take into consideration the quality of the options, how much they cost, and how they can potentially help you achieve your long-term goals.

Remember, if your plan gives you the chance to dip your toes into private markets, the fundamentals of successful long-term wealth-building remain unchanged: consistent contributions, appropriate diversification and reasonable costs. While private investments offer new opportunities, they are just one tool among many in building a secure retirement.

We’ll continue monitoring these developments and are here to help you navigate any changes that may affect your retirement planning strategy.