In this article, the author argues that without rigorous fiduciary oversight, education and safeguards, putting such investments into mainstream retirement accounts is an accident waiting to happen.

When the Trump administration decided to allow holders of 401(k) retirement plans to hold private market investments, it highlighted how the oft-used term of “democratization” of such assets had come to pass. With more firms staying private, or taking longer to list, there is a legitimate public policy concern over whether the broad public are being frozen out of sources of return if they are unable, or barred, from holding private market assets (equity, credit, infrastructure, etc). On the flipside, there are risks, and we have heard skeptical comments about how wide access to private markets should be. (As an aside, it is worth bearing in mind that in some markets it is possible to use a listed vehicle, such as an investment trust, that holds stakes in private equity, although there can be a wide discount in the share price relative to net asset value. There has also been a move into the so-called "evergreen," aka perpetual, field of funds. We examined potential risks only a few days ago. See here and here.)

In any event, debate continues – and recent sharp moves on the private credit funds size add fuel to arguments on whether retail investors should be particularly careful. Entering the fray here is Patrick Kennedy (pictured below this article), founder and managing partner, All Source Investment Management. The editors are pleased to share these views; the usual editorial disclaimers operate with views of guest writers. To respond, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

I spent years as an alternative investment director at Morgan Stanley before founding All Source Investment Management, where we build institutional-grade alternative portfolios for high net worth and ultra-HNW families. Private credit, private equity, hedge funds, real estate, infrastructure â€“these are the asset classes I live in every day. I believe in them deeply.

And I am telling you that putting them into 401(k) plans is a serious mistake.

The timing alone should give everyone pause. BlackRock just gated redemptions on a $26 billion private credit fund. Multiple other major managers have capped or restricted withdrawals in recent weeks. These are not failures of the underlying asset class. They are a reminder that private credit is structurally illiquid, and the semi-liquid vehicles designed to package it for broader distribution have real constraints that even sophisticated investors are now confronting.

Now the proposal is to introduce these same structures into retirement accounts where the average participant has no advisor, no understanding of lock-up periods, and no ability to evaluate credit risk on middle-market loans. That is not democratization. It is distribution.

And think about how this will work in practice. Most 401(k) participants don't pick individual funds. More than 60 per cent of plan inflows go into target date funds. The real play here isn't a participant choosing "Private Credit Fund X" from a menu. It's asset managers embedding private credit inside target date funds where participants never actively selected it and may never know they own it. That is not giving people access. It is passive inclusion without informed consent.

Then there's the fiduciary exposure this creates for plan sponsors, and nobody is talking about it. The average business owner running a 401(k) is a dentist, a contractor, a software company founder. They are plan fiduciaries by law. They are now being told that they can offer private credit and private equity in their plan lineup, asset classes that require a level of diligence most institutional allocators find challenging. How is a business owner with no investment background supposed to evaluate a private credit manager's underwriting standards, portfolio concentration, or liquidity terms? They can't. 

And when an employee tries to roll over their account or take a distribution and learns that a portion of their balance is locked up in a gated fund, that phone call is going to the business owner. Not to BlackRock. Not to the record keeper. To the person who sponsored the plan. These owners did not sign up to explain redemption queues to their employees. They should not be put in that position.

Alternatives were built for investors with dedicated due diligence teams and long-time horizons, not for someone selecting from a dropdown menu during HR onboarding. The product architecture hasn't evolved to support this use case. The complexity hasn't been simplified. The liquidity constraints haven't been resolved. The only thing that's changed is that the industry wants a new distribution channel.

Private credit can be a powerful tool in the right portfolio with the right guidance. But without proper education, fiduciary oversight, and structural safeguards, putting these products into 401(k)s is a setup for misaligned expectations, or worse, real harm to the people who can least afford it.

Patrick Kennedy