The move, if it happens, adds another twist to debate on how wide access should be made to private market investment, given the opportunities and risks involved.

Media reports this week said that President Donald Trump is about to sign an executive order that would allow employees to invest in private assets through their 401(k) retirement plans. No details have been issued at the time of this publication going to press. 

If the move happens, it will follow the bill passed in late June by the US House of Representatives directing the Securities and Exchange Commission to expand the eligibility requirements for participating directly in private investments. 

Advocates for widening access to these assets say they’re increasingly important return drivers – particularly because fewer firms are listed or take longer to go to IPO, and that risk-adjusted returns are superior. Against that, critics fear that ordinary investors will not like the higher fees, capital calls and other complexities that typically form part of the package. 

In recent years there has been a relentless drumbeat of calls to widen access to private markets. A decade-plus of ultra-low interest rates, for example, crushed yields for listed stocks and bonds and fueled demand for alternative assets. Traditionally, a field such as private equity is a rich person’s game requiring at least $1 million of investment. There has been movement toward more “fractional” investment, tokenization via the blockchain, using listed funds holding alternatives, and “evergreen,” open-ended structures. In Europe, the UK government is advocating using its Long Term Asset Fund legal structure to be held – if suitable – in retail savings funds, and in Europe, ELTIF funds are available. 

A Bloomberg report on the 401(k) story said that fewer than one in 10 retirement plans in the US offer any kind of alternative investment option; and only 2.4 per cent make private equity available, citing data from an American Retirement Association survey.

Double-edged sword?
"There's no escaping the fact that retail investors will be a huge growth area for private markets. This significant potential is encouraging the private equity industry to broaden its reach, opening up the space to enable a broader range of investors to participate,” Michael Aldridge, president and chief revenue officer at private markets tech firm Axellex, said in comments emailed to Family Wealth Report. 

"However, this is a double-edged sword. Private markets are notorious for their lack of transparency, with even seasoned institutional investors struggling to get the data and visibility they need to make smart decisions in the space. For retail investors investing their 401(k)s, this lack of clarity could mean taking on risks without having a full picture of the investment.

“Fund managers opening up private markets to retail investors must take strong measures to improve clarity over private assets' valuations and performance to ensure they can make informed decisions and have full visibility of where their hard-earned money is going,” he added. 

His remarks add to skepticism about how far the door should be widened. 

On the accredited investor theme, at present, those bearing that title must have $1 million in net worth, excluding their primary residence or an annual income of $200,000, and $300,000 in income for joint spousal investors. To broaden access to private markets, new legislation would expand the definition of an accredited investor under what is known as Regulation D to include people with professional-level knowledge through either their work experience or education, which would explicitly include registered brokers and investment advisors.