Bloomberg Audio Studios, podcasts, radio news. One day in January, less than a week before President Trump's second inauguration, a group of more than thirty money managers hopped onto a Zoom call. It included representatives from Blackstone, Ubs and other big Wall Street firms.

Bloomberg Audio Studios, podcasts, radio news. One day in January, less than a week before President Trump's second inauguration, a group of more than thirty money managers hopped onto a Zoom call. It included representatives from Blackstone, Ubs and other big Wall Street firms.

It was sort of a meeting of like minded individuals to strategize about. I guess goals would be a way of putting it that they have in common.

It was sort of a meeting of like minded individuals to strategize about. I guess goals would be a way of putting it that they have in common.

Alison McNeely covers the private equity industry for Bloomberg.

Alison McNeely covers the private equity industry for Bloomberg.

One key principle I think that folks were coalescing around was the idea to get more private equity, private credit hedge fund, that sort of thing into the retirement accounts of everyday Americans.

One key principle I think that folks were coalescing around was the idea to get more private equity, private credit hedge fund, that sort of thing into the retirement accounts of everyday Americans.

They wanted a piece of the four to oh one K.

They wanted a piece of the four to oh one K.

It's kind of the next gold rush.

It's kind of the next gold rush.

For a long time, private equity firms have relied on capital from pension funds, endowments, and other kinds of professional investors to sustain their growth. But now these firms are looking to explore new frontiers, potentially very lucrative frontiers. There's about twelve trillion dollars in employer sponsored accounts like four oh one K plans.

For a long time, private equity firms have relied on capital from pension funds, endowments, and other kinds of professional investors to sustain their growth. But now these firms are looking to explore new frontiers, potentially very lucrative frontiers. There's about twelve trillion dollars in employer sponsored accounts like four oh one K plans.

That's only expected to grow. Those funds don't generally have private assets in them, so if they can grab even a slice of that, that's a few trillion right there.

That's only expected to grow. Those funds don't generally have private assets in them, so if they can grab even a slice of that, that's a few trillion right there.

And when they gathered on that pre inauguration zoom call, the industry's biggest players agreed, now is the time to start grabbing slices. What was the vibe like?

And when they gathered on that pre inauguration zoom call, the industry's biggest players agreed, now is the time to start grabbing slices. What was the vibe like?

The vibe was definitely optimistic. You know, there's a sense in the industry that now is the moment to strike. With President Trump back in the White House, four one ks and the goal of getting into four o one k's is an extension of a broader theme that really has been taking place for the private equity industry for many years now. The traditional sources of capital have been tapped out, but these private equity firms are still looking for ways to grow and so it's a market that they haven't really tapped before regular people.

The vibe was definitely optimistic. You know, there's a sense in the industry that now is the moment to strike. With President Trump back in the White House, four one ks and the goal of getting into four o one k's is an extension of a broader theme that really has been taking place for the private equity industry for many years now. The traditional sources of capital have been tapped out, but these private equity firms are still looking for ways to grow and so it's a market that they haven't really tapped before regular people.

This is the big take from Bloomberg News. I'm Sarah Holder today on the show Private Equity wants in on Americans retirement plans. What's behind pees play for the four oh one k how likely is it to work and what would it mean for your savings? Let's say you're an employee working at a company that offers four oh one K retirement plans, you may not know exactly what kinds of investments are in the retirement plan you choose.

This is the big take from Bloomberg News. I'm Sarah Holder today on the show Private Equity wants in on Americans retirement plans. What's behind pees play for the four oh one k how likely is it to work and what would it mean for your savings? Let's say you're an employee working at a company that offers four oh one K retirement plans, you may not know exactly what kinds of investments are in the retirement plan you choose.

I barely know it's in my furrow and k to be quite honest with.

I barely know it's in my furrow and k to be quite honest with.

You, people tend to pick from a few default, pre mixed options, and that's what makes the job of selecting what goes into those four oh one K offerings so important.

You, people tend to pick from a few default, pre mixed options, and that's what makes the job of selecting what goes into those four oh one K offerings so important.

They basically have a responsibility to you, me to other employees under federal law, to essentially pick safe or responsible investments for us to choose.

They basically have a responsibility to you, me to other employees under federal law, to essentially pick safe or responsible investments for us to choose.

Traditionally, that's meant a four to oh one K is invested in a mix of stocks and bonds.

Traditionally, that's meant a four to oh one K is invested in a mix of stocks and bonds.

The classic portfolio would be sixty percent stocks forty percent bonds. A lot of people are invested in what's called a target date fund, so basically you kind of pick the fund with the retirement date closest to when you think you're going to retire. I think I'm in like a twenty fifty five fund. I'm in my late thirties, So to give you an idea, right now, that fund is almost entirely in stocks, and as I get closer to retirement, that fund will shift into bonds because bonds are perceived to be safer.

The classic portfolio would be sixty percent stocks forty percent bonds. A lot of people are invested in what's called a target date fund, so basically you kind of pick the fund with the retirement date closest to when you think you're going to retire. I think I'm in like a twenty fifty five fund. I'm in my late thirties, So to give you an idea, right now, that fund is almost entirely in stocks, and as I get closer to retirement, that fund will shift into bonds because bonds are perceived to be safer.

But stocks and bonds aren't the only kinds of investments a four to oh one K could include.

But stocks and bonds aren't the only kinds of investments a four to oh one K could include.

There are folks who say, no, actually, like private equity is a totally valid and legitimate option as well, that just hasn't been offered so far. They would like to see, essentially my twenty fifty five target date fund take a slice out of stocks and bonds and instead put it into private equity funds.

There are folks who say, no, actually, like private equity is a totally valid and legitimate option as well, that just hasn't been offered so far. They would like to see, essentially my twenty fifty five target date fund take a slice out of stocks and bonds and instead put it into private equity funds.

Can you explain how private equity firms work and why they aren't typically offered as an option.

Can you explain how private equity firms work and why they aren't typically offered as an option.

Yeah, so private equity we're really using a simplistic term to sort of describe the broader industry. That's about twenty five trillion dollars in assets of private assets, so equity, debt, real estate. Basically, they don't trade on a stock exchange. They're sort of bought and held for the long term. Generally, when you invest in a private equity fund, you're handing over a chunk of change to that firm for ten years. You're saying, I'm going to give you a check for one hundred million dollars to invest in your latest fund, and you're going to go out and buy companies, turn them around, and then hopefully ideally sell them at a profit sometime in the next five to ten years. In the meantime, I don't expect to get my money back.

Yeah, so private equity we're really using a simplistic term to sort of describe the broader industry. That's about twenty five trillion dollars in assets of private assets, so equity, debt, real estate. Basically, they don't trade on a stock exchange. They're sort of bought and held for the long term. Generally, when you invest in a private equity fund, you're handing over a chunk of change to that firm for ten years. You're saying, I'm going to give you a check for one hundred million dollars to invest in your latest fund, and you're going to go out and buy companies, turn them around, and then hopefully ideally sell them at a profit sometime in the next five to ten years. In the meantime, I don't expect to get my money back.

Private equity firms typically make their money by buying a company, usually with debt. They try to maximize profits, cut costs, and eventually sell it for more than they bought it for. This setup means private equity investments are less liquid. It's harder for an investor to cash out if the firm hasn't yet turned around a business or flipped it. And now higher interest rates and declining asset values have meant fewer sales, which means investors aren't getting their money back, which chokes off that cycle of reinvestment. It's a big motivation for this push to tap new pools of cash like retirement savings. But for investors, being exposed to private equity comes with risks.

Private equity firms typically make their money by buying a company, usually with debt. They try to maximize profits, cut costs, and eventually sell it for more than they bought it for. This setup means private equity investments are less liquid. It's harder for an investor to cash out if the firm hasn't yet turned around a business or flipped it. And now higher interest rates and declining asset values have meant fewer sales, which means investors aren't getting their money back, which chokes off that cycle of reinvestment. It's a big motivation for this push to tap new pools of cash like retirement savings. But for investors, being exposed to private equity comes with risks.

There's a chance it might go bankrupt. There's a chance this turnaround planned or this sort of value creation plan you have might not work out. That is very different from investing in the stock of a big, publicly traded company, where you're a shareholder and your one tiny, tiny, tiny little slice of all these other public shareholders where you can go and log into your brokerage app and buy and sell that stock whenever you want. So they're just sort of perceived as a higher risk, higher return investment, and so in the past they've been restricted only to professional investors who kind of know what they're doing, you know, pension funds, endowments, that sort of thing.

There's a chance it might go bankrupt. There's a chance this turnaround planned or this sort of value creation plan you have might not work out. That is very different from investing in the stock of a big, publicly traded company, where you're a shareholder and your one tiny, tiny, tiny little slice of all these other public shareholders where you can go and log into your brokerage app and buy and sell that stock whenever you want. So they're just sort of perceived as a higher risk, higher return investment, and so in the past they've been restricted only to professional investors who kind of know what they're doing, you know, pension funds, endowments, that sort of thing.

What about fees? Are PE fees higher than other investments?

What about fees? Are PE fees higher than other investments?

Yes, private equity fees are typically what they call two and twenty, So that basically means that the private equity firm takes two percent of whatever you give them as a management fee. That's just the money they make for managing your money. And then the twenty percent is that they take twenty percent of any profit that they make.

Yes, private equity fees are typically what they call two and twenty, So that basically means that the private equity firm takes two percent of whatever you give them as a management fee. That's just the money they make for managing your money. And then the twenty percent is that they take twenty percent of any profit that they make.

The average ETF fee is closer to point four four percent, significantly lower than the average PE fee. These risks and fees have so far turned off four oh one K managers. Today, fewer than one in ten four oh one K plans offer any kind of alternative investment, According to a survey from the American Retirement Association. Of those that do, less than one in four include private equity in the mix, but private equity proponents argue these risks are worth it for the potential rewards. Walk me through some of the arguments that private equity managers use for including private equity in four h and K offerings.

The average ETF fee is closer to point four four percent, significantly lower than the average PE fee. These risks and fees have so far turned off four oh one K managers. Today, fewer than one in ten four oh one K plans offer any kind of alternative investment, According to a survey from the American Retirement Association. Of those that do, less than one in four include private equity in the mix, but private equity proponents argue these risks are worth it for the potential rewards. Walk me through some of the arguments that private equity managers use for including private equity in four h and K offerings.

Yeah, so they say they beat the S and P five hundred, and they might have a point there. You know, if you want to broaden your exposure away from sort of the biggest tech stocks, away from the volatility of public markets, they might have an argument for that.

Yeah, so they say they beat the S and P five hundred, and they might have a point there. You know, if you want to broaden your exposure away from sort of the biggest tech stocks, away from the volatility of public markets, they might have an argument for that.

But there's also a counter argument.

But there's also a counter argument.

Well, you're going into investments that are a lot more opaque, that are not valued on a daily basis. There's a little bit more art as to how they're valued and how they're traded and what they might be worth. Then who might want to buy them from you? Because you you know, with a private equity investment, the only way you make money if you buy a company is if you can find someone else to sell that company to. And that is actually a challenge that we've seen the private equity industry go through in the last couple of years. Higher interest rates, more expensive debt has made it harder for private equity firms to sell a lot of these companies that they've invested in, and so there is something to be said about also being able to get in and out of MetaStock knowing exactly what it's worth, knowing that someone will buy it from you.

Well, you're going into investments that are a lot more opaque, that are not valued on a daily basis. There's a little bit more art as to how they're valued and how they're traded and what they might be worth. Then who might want to buy them from you? Because you you know, with a private equity investment, the only way you make money if you buy a company is if you can find someone else to sell that company to. And that is actually a challenge that we've seen the private equity industry go through in the last couple of years. Higher interest rates, more expensive debt has made it harder for private equity firms to sell a lot of these companies that they've invested in, and so there is something to be said about also being able to get in and out of MetaStock knowing exactly what it's worth, knowing that someone will buy it from you.

Still, people pushing to get private equity into four oh one ks say that the fact that these are longer term, less liquid investments is actually a good thing.

Still, people pushing to get private equity into four oh one ks say that the fact that these are longer term, less liquid investments is actually a good thing.

Pollo Global Management CEO Marcron is an example of this. They're a large private equity firm. They say that actually private assets because of the long term investment horizon of retirement. It's a perfect match. Because you don't need your money for twenty thirty, forty years. You don't actually need to be all in stocks and bonds and things that can be sold on demand whenever you want on a daily basis.

Pollo Global Management CEO Marcron is an example of this. They're a large private equity firm. They say that actually private assets because of the long term investment horizon of retirement. It's a perfect match. Because you don't need your money for twenty thirty, forty years. You don't actually need to be all in stocks and bonds and things that can be sold on demand whenever you want on a daily basis.

Right, You don't have to today, sell it tomorrow. You have to buy today, sell it in thirty years or forty years exactly.

Right, You don't have to today, sell it tomorrow. You have to buy today, sell it in thirty years or forty years exactly.

And by taking you know, a smaller portion of your portfolio some people say ten percent, some people say twenty percent. By taking a portion of that and instead putting in a private equity fund, that yes, is a little bit riskier but has the potential for higher return. It's actually smart, and if you don't do that, you're leaving money on the table. A lot of people who are proponents of putting private investments, such as private equity into furrowon keys, say the best way to do it would be as part of a diversified portfolio like a target day fund, and so it's basically like the asset mix would change over time. There are some people who still say, I don't know like that. It's still it's really difficult to determine how like the liquidity as they call it, will really work, if people will really be able to get out of these things if they need to, if the asset mix is really appropriate. Like these are still live questions that people are trying to sell.

And by taking you know, a smaller portion of your portfolio some people say ten percent, some people say twenty percent. By taking a portion of that and instead putting in a private equity fund, that yes, is a little bit riskier but has the potential for higher return. It's actually smart, and if you don't do that, you're leaving money on the table. A lot of people who are proponents of putting private investments, such as private equity into furrowon keys, say the best way to do it would be as part of a diversified portfolio like a target day fund, and so it's basically like the asset mix would change over time. There are some people who still say, I don't know like that. It's still it's really difficult to determine how like the liquidity as they call it, will really work, if people will really be able to get out of these things if they need to, if the asset mix is really appropriate. Like these are still live questions that people are trying to sell.

Part of the reason we don't know the answers to these questions yet is because private equity's share of American four to oh one k's is still tiny. But under a Trump presidency, the industry is hoping that could change after the break the political shifts that could help PE capture investments from regular people. Four oh one k's were invented some fifty years ago to help workers avoid paying taxes. On deferred compensation that evolved into a way for employees to save for retirement without employers having to offer a traditional pension. The number of people enrolled in four oh one k's and similar retirement plans has steadily grown, and companies are required to act in their employee's best interest when selecting the breakdown of their four oh one K offerings.

Part of the reason we don't know the answers to these questions yet is because private equity's share of American four to oh one k's is still tiny. But under a Trump presidency, the industry is hoping that could change after the break the political shifts that could help PE capture investments from regular people. Four oh one k's were invented some fifty years ago to help workers avoid paying taxes. On deferred compensation that evolved into a way for employees to save for retirement without employers having to offer a traditional pension. The number of people enrolled in four oh one k's and similar retirement plans has steadily grown, and companies are required to act in their employee's best interest when selecting the breakdown of their four oh one K offerings.

Basically, retirement law says the fiduciar has a sort of responsibility to pick the most prudent investment for their plan participants. They don't really say what prudent means, and so people have taken a really conservative interpretation of that.

Basically, retirement law says the fiduciar has a sort of responsibility to pick the most prudent investment for their plan participants. They don't really say what prudent means, and so people have taken a really conservative interpretation of that.

Bloomberg's Alison McNeely says that requirement is one reason many employers have shied away from including private equity in their plans.

Bloomberg's Alison McNeely says that requirement is one reason many employers have shied away from including private equity in their plans.

There's a lawsuit that a lot of people in and around the industry invoke, which is the Intel lawsuit. Intel was sued about a decade ago after Intel put some private equity funds in some hedge funds into its Furrow and K plan. Some of those employees sued the company. They said, you put our plan into these private assets at the time that public markets were on a tear, and we actually missed out on the market rally.

There's a lawsuit that a lot of people in and around the industry invoke, which is the Intel lawsuit. Intel was sued about a decade ago after Intel put some private equity funds in some hedge funds into its Furrow and K plan. Some of those employees sued the company. They said, you put our plan into these private assets at the time that public markets were on a tear, and we actually missed out on the market rally.

You didn't manage my money correctly by investing in private equity.

You didn't manage my money correctly by investing in private equity.

Yeah, and so that lawsuit really created a chilling effect in the industry because other companies don't want to get sued, and they just basically want to know that if they were to allocate some of their fourah on k into private investments, that they wouldn't get sued. And also even if they do get sued and defend themselves, there's still a lot of headline or reputational risk there that many of these companies that are conservative by nature and want to protect their reputations would like to avoid.

Yeah, and so that lawsuit really created a chilling effect in the industry because other companies don't want to get sued, and they just basically want to know that if they were to allocate some of their fourah on k into private investments, that they wouldn't get sued. And also even if they do get sued and defend themselves, there's still a lot of headline or reputational risk there that many of these companies that are conservative by nature and want to protect their reputations would like to avoid.

That. Intel case over its four oh one K strategy was eventually dismissed. The plaintiffs are trying to get that dismissal overturned on appeal, but some employers are waiting for a more definitive sign that exposing their employees for one ks to private equity won't get them into trouble.

That. Intel case over its four oh one K strategy was eventually dismissed. The plaintiffs are trying to get that dismissal overturned on appeal, but some employers are waiting for a more definitive sign that exposing their employees for one ks to private equity won't get them into trouble.

I think a lot of corporate four oh one K plan administrators are looking for a green light from the government that they won't be sued if they put alternative assets into their retirement plan. The way the law is right now now is It's kind of silent technically from a legal standpoint, there's nothing preventing a company from putting private equity in their fore own k plan, provided they've done their due diligence and run their process to make an appropriate investment. It's really sort of a hearts and minds debate or argument or fight as much as anything else.

I think a lot of corporate four oh one K plan administrators are looking for a green light from the government that they won't be sued if they put alternative assets into their retirement plan. The way the law is right now now is It's kind of silent technically from a legal standpoint, there's nothing preventing a company from putting private equity in their fore own k plan, provided they've done their due diligence and run their process to make an appropriate investment. It's really sort of a hearts and minds debate or argument or fight as much as anything else.

With a new business friendly administration in the White House and Republicans in control of Congress, private equity advocates are hoping this is the moment they could get more clarity from the federal government. What is it about this moment that is telling private equity firms we might get a green light from the government.

With a new business friendly administration in the White House and Republicans in control of Congress, private equity advocates are hoping this is the moment they could get more clarity from the federal government. What is it about this moment that is telling private equity firms we might get a green light from the government.

The first Trump Department of Labor did put out a letter that says we think that private equity has a role in for own cas. So that was a pretty clear signal back in twenty twenty that you know, folks could possibly go ahead with this.

The first Trump Department of Labor did put out a letter that says we think that private equity has a role in for own cas. So that was a pretty clear signal back in twenty twenty that you know, folks could possibly go ahead with this.

But then the Biden administration put out its own guidance that urged caution. So the question is will the guidance flip once again with Trump back in charge.

But then the Biden administration put out its own guidance that urged caution. So the question is will the guidance flip once again with Trump back in charge.

The Department of Labor could put out a letter that essentially says you can go ahead and put private equity into a furrow and k if you've done your homework and evaluated the investment properly. There's also the potential that some members of Congress could try to get legislation passed. That is definitely a harder route.

The Department of Labor could put out a letter that essentially says you can go ahead and put private equity into a furrow and k if you've done your homework and evaluated the investment properly. There's also the potential that some members of Congress could try to get legislation passed. That is definitely a harder route.

Obviously, the politics are shifting such that perhaps that could happen more and more. But is there evidence that employees would opt into those plans.

Obviously, the politics are shifting such that perhaps that could happen more and more. But is there evidence that employees would opt into those plans.

I don't think there's a sense at this point that employees are clamoring for private assets, but maybe they will in the future.

I don't think there's a sense at this point that employees are clamoring for private assets, but maybe they will in the future.

Right for some people, private equity doesn't have the best reputation. They see headlines about its negative impact on sectors like healthcare and housing. I guess what I'm asking is, do you get the sense that some workers would want to avoid having their four oh one K tied up in private equity for ethical reasons?

Right for some people, private equity doesn't have the best reputation. They see headlines about its negative impact on sectors like healthcare and housing. I guess what I'm asking is, do you get the sense that some workers would want to avoid having their four oh one K tied up in private equity for ethical reasons?

It's a really good question. There are people who don't like private equity, who don't like the impact private equity has had on healthcare and other industries, and they might object to having therefore one K invested in that. But if it's part of a target date fund, it's sort of being offered to them as part of a broad portfolio. They might not even be able to opt out of it. Like, at this point, we don't really know.

It's a really good question. There are people who don't like private equity, who don't like the impact private equity has had on healthcare and other industries, and they might object to having therefore one K invested in that. But if it's part of a target date fund, it's sort of being offered to them as part of a broad portfolio. They might not even be able to opt out of it. Like, at this point, we don't really know.

This is The Big Take from Bloomberg News. I'm Sarah Holder. This episode was produced by Julia Press. It was edited by Tracy Samuelson and Amanda Cantrell. It was fact checked by Audreyannatapia and mixed and sound designed by Alex Sugiura. Special thanks to Don limm Our senior producer is Naomi Shaven. Our senior editor is Elizabeth Ponso. Our executive producer is Nicole beemsterbor Sage Bauman is Bloomberg's head of podcasts. If you like this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.

This is The Big Take from Bloomberg News. I'm Sarah Holder. This episode was produced by Julia Press. It was edited by Tracy Samuelson and Amanda Cantrell. It was fact checked by Audreyannatapia and mixed and sound designed by Alex Sugiura. Special thanks to Don limm Our senior producer is Naomi Shaven. Our senior editor is Elizabeth Ponso. Our executive producer is Nicole beemsterbor Sage Bauman is Bloomberg's head of podcasts. If you like this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.