Written by Louise Pradayrol, Isaac Wang, Svea Tegnestedt and Mavie Zoeschg | Editor: Pablo Panizza
The New Landscape
The executive order by Trump, made in August 2025 to release the 401(k) retirement plans to alternative assets, can be considered a long-awaited blessing for private equity firms, though, when digging deeper, the whole story may not be as picture-perfect as it appears at first glance.
The 401(k) is a type of retirement plan for citizens in the United States that allows for tax-efficient personal pension savings. A key characteristic of the 401(k) is that employees place their money in these plans before federal income taxes are withdrawn from their paycheck. This allows for a decrease in yearly taxes paid until the money is withdrawn from the account. Hence, it is seen as an investment of a part of employees’ salary, sponsored by the employer, that goes into funds and bonds. Typically, this includes mutual or target-date funds to minimise the investment’s risk as retirement approaches, as the target audience usually encompasses non-professional retail investors. However, following Trump’s order, the capital in the 401(k) retirement accounts has now been made available to alternative assets, not only traditional ones. This includes real estate, cryptocurrencies and private equity.
With this sought-after capital being released to, specifically, private equity firms, a wave of effects is coming their way, some more positive than others. The blessing of this change is clear: capital. Private equity firms live off capital, and with this order, a door has opened up to new assets, giving opportunity for growth and income via fees. Though increased capital, the investment opportunities for that capital remain the same. Many firms with deep capital will be going after the same targets, causing an increase in asset prices, a lowering of returns and pension managers pushing down the yearly fees they are willing to pay private equity firms. All in all, this can lead to being a blessing for large, well-established firms able to take on the lowered fees and push away smaller, more average firms, but to what extent?
Development and Realization of the 401(k) Changes
Within the recent updates to the 401(k) system, the most significant development for the private equity industry is that retirement funds can now channel a portion of their savings into private equity. Until recently, 401(k) savings were almost exclusively invested in traditional public assets like stocks, bonds, or mutual funds. This changed in 2020, when the U.S. Department of Labor first allowed private equity exposure within 401(k) plans but only indirectly, through diversified investment funds managed by professionals. However, in practice, very few employers or plan providers adopted the option. The structure was seen as too complex, too illiquid and too risky for ordinary savers. There were also legal uncertainties and concerns about high fees, which made it inconvenient for both employers and fund managers.
The landscape has now evolved again. Under the SECURE 2.0 Act, a broader framework for 401(k) plans has been introduced, improving regulation, transparency and plan design. This has made it easier and more appealing for fund managers to include a small share of private equity exposure within retirement portfolios. As a result, what was once only a theoretical idea is now expected to gain traction.
Naturally, private equity firms stand to benefit the most from this development. The enormous pool of U.S. retirement savings worth over $7tn could represent a new and steady source of capital for PE funds. For investors, this could also mean access to potentially higher returns than traditional public-market investments offer.
However, there are good reasons why regulations initially restricted such exposure. Private equity investments are illiquid, complex and often expensive, with performance depending heavily on long-term company exits. For ordinary retirement savers, this means limited flexibility and the risk of higher fees or lower transparency compared to traditional mutual funds.
Effects of this policy change
After nearly a decade of abundant liquidity, starting in 2013 with the “easy-money” era to 2021’s stimulus-fueled boom, the private equity market has recently facing a drought. Exits are drying up, fundraising reservoirs are shrinking, and valuations are coming under pressure.
Global PE deal value fell more than 40% from over $1tn in 2021 to 2024 due to higher rates and weak exit markets that choked liquidity. Distributions to investors declined by nearly 60% YoY, leaving around $3tn of dry powder. Fundraising has slowed as exits stalled and investors reassessed risk in the higher rate environment. In fact, higher interest rates have a double impact: they raise the cost of financing, which lowers the present value of future returns, and they make traditional fixed-income assets much more attractive relative to riskier private investments. Investors demand stronger justification for PE’s premium and greater transparency about how returns will be generated in this costlier capital landscape. To maintain liquidity, firms have increasingly turned to continuation vehicles. These rose from accounting for 10-12% of secondary transactions in 2019 to more than 25% in 2025.
However, the relaxation of 401(k) regulations could bring the long-awaited rainfall of pension fund capital, replenishing dry pipelines and allowing new, longer-term growth to take shape. By opening private equity to defined-contribution plans at scale, this long-awaited reform unlocks a potential multi-trillion-dollar pool of long-term and patient capital. Given that US pension plans hold more than $28tn in assets, even a modest reallocation of 5% into private markets could dramatically reshape PE funding dynamics. Within a market dealing with multiple headwinds, this provides a rare opportunity for PE firms: a source of stability and a chance to realign strategies with long-term investors.
As private equity becomes accessible to a broader base of retirement savers, funds will need to adapt to stricter liquidity, transparency, and reporting standards. Indeed, many private equity firms are already adapting, developing evergreen, interval or collective investment trusts (CIT), designed to fit the liquidity constraints of such 401(k) plans. Partnerships between plan providers such as Fidelity and Vanguard and private equity firms are also emerging to integrate private-market exposure into retirement portfolios. Such a shift also accelerates product innovation, with hybrid structures that blend public and private assets. Additionally, regulatory expectations are pushing funds to enhance transparency and disclosure standards to meet fiduciary requirements.
Moreover, certain pension funds’ strategies and requirements to align with certain sustainability frameworks may lead to the creation of new ESG-integrated or impact-oriented PE vehicles tailored to meet these objectives and regulatory standards.
In parallel, inclusion within 401(k) plans will intensify fee competition, as investors will assess private equity products alongside much lower-cost traditional asset classes.
Broader Outlook
In sum, the recent U.S. pivot to permit alternative assets in 401(k) menus, anchored by Trump’s August Executive Order, has created a clear regulatory runway but not an automatic flood of capital. Adoption will be deliberate and fiduciary-led, with guardrails around diversification, valuation, liquidity and fees, and most access likely arriving via professionally managed multi-asset options or semi-liquid structures rather than stand-alone PE picks.
Against today’s backdrop of sluggish fundraising and uneven exits, that runway matters. PE managers are still contending with slower closes and constrained distributions, so they’re broadening their investor base toward defined-contribution and private-wealth channels to stabilise inflows. If plan sponsors and recordkeepers can deliver low-friction, well-diversified sleeves with transparent pricing, the policy change can incrementally improve savers’ long-term, net-of-fee outcomes while diversifying their portfolios, though the impact will be measured in years, not quarters.
We’re already seeing the product machinery spin up. Apollo is leaning hard into the wealth channel, rolling out interval and evergreen vehicles and new ELTIF offerings for European wealth platforms, while investing in advisor education and tools to make private-markets allocations repeatable at scale. EQT, for its part, has launched the Nexus ELTIF Private Equity evergreen fund to open its platform to eligible retail investors across the EU/EEA. These examples underscore who stands to benefit first: firms with the scale, distribution, and operating infrastructure to package private markets for non-institutional savers. For U.S. participants, the prize is real but conditional: bigger retirement balances are possible if access arrives through diversified, cost-aware vehicles with prudent sizing and clear disclosures.
Bibliography:
Investopedia, https://www.investopedia.com/terms/1/401kplan.asp
IRS, https://www.irs.gov/retirement-plans/choosing-a-retirement-plan-401k-plan
Financial Times, https://www.ft.com/content/fd73e346-c938-4c21-b757-fb8d0c027b7c
Brownstein, https://www.bhfs.com/insight/trump-administration-begins-swift-implementation-of-401k-eo/
Ogletree, https://ogletree.com/insights-resources/blog-posts/catching-up-on-401k-catch-up-changes-for-2025/
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