ICI Praises Expanded Opportunities in Private Investment Spheres
In a move aimed at broadening investment opportunities for Americans, President Trump's August 2025 Executive Order seeks to open up access to private market investments and other alternative assets like private equity, real estate, cryptocurrencies, and infrastructure projects, within 401(k) plans[1][2][3][4][5].
The Order directs the Department of Labor (DOL), Securities and Exchange Commission (SEC), and Treasury to reexamine and potentially relax fiduciary guidance related to alternative investments in defined contribution (DC) plans, including 401(k)s[3][5]. This modernization could democratize access to assets that were previously limited to institutional investors and defined benefit plans[3][5].
Potential Benefits and Risks
The change could provide benefits such as diversification, potentially reducing volatility and increasing long-term returns[3][5]. However, it also raises concerns about increased investment complexity, risk, reduced liquidity, and fiduciary challenges that could impact retail investors unless carefully managed and communicated[1][4][5].
Private markets, while a strong-performing asset class delivering excellent long-term returns[6], lack real-time information, clean data, and standardization compared to investing in stocks[4]. They also have higher risk profiles, with valuations and performance not updated daily[1][4]. Private assets may be illiquid or have long lock-up periods, limiting investors' ability to access their money quickly[1][5]. Employers and plan fiduciaries face tougher decisions in vetting and supervising alternative asset managers to meet ERISA’s prudence standards, especially given litigation risks and past regulatory caution[2][4][5].
Uncertainties Ahead
Because of legal and risk considerations, many plan sponsors may be reluctant to offer these options widely[1]. Retail investors could take on risks without having a full picture of the investment in private markets[7]. The Order directs the DOL to reexamine its guidance on a fiduciary's duties regarding alternative asset investments in ERISA-governed 401(k) and other defined-contribution plans[8].
The Order also directs the Securities and Exchange Commission to facilitate access to alternative assets for participant-directed defined-contribution retirement savings plans by revising applicable regulations and guidance[9]. Regulatory overreach and litigation risks have limited ERISA-governed plan fiduciaries from including alternative assets in their investment portfolios, hindering workers' retirement growth[10].
The Investment Company Institute (ICI) supports giving Americans access to private market investments through fund vehicles in their retirement plan accounts[5]. President Trump's Department of Labor has already rescinded guidance put in place by the Biden Administration regarding digital assets[11]. The executive order could open up fresh capital flows for the private market industry, and President Trump promised to make the United States the "crypto capital of the world," emphasizing the need to embrace digital assets to drive economic growth and technological leadership[12].
In conclusion, while the Executive Order broadens the potential investment menu within 401(k)s, it's crucial for all parties involved to carefully manage and communicate the increased complexity, risk, and fiduciary challenges that come with investing in private markets and alternative assets.
[1] Source 1 [2] Source 2 [3] Source 3 [4] Source 4 [5] Source 5 [6] Source 6 [7] Source 7 [8] Source 8 [9] Source 9 [10] Source 10 [11] Source 11 [12] Source 12
- The Executive Order proposals for regulatory changes could potentially enable more individuals to invest in digital assets and other alternative assets like private equity, real estate, and infrastructure projects within their personal-finance and retirement saving plans, such as 401(k).
- By potentially relaxing the fiduciary guidance related to these alternative investments in defined contribution (DC) plans, the Department of Labor, Securities and Exchange Commission, and Treasury aim to democratize access to alternative asset classes that were previously limited to institutional investors and defined benefit plans.
- Investing in private markets and alternative assets, such as cryptocurrencies, may offer benefits such as diversification, yet it also carries increased investment complexity, risk, reduced liquidity, and fiduciary challenges, which must be managed and communicated carefully to protect retail investors' personal-finance interests.
