Oh, the irony. Just as market headlines reveal huge worries about “private credit” and “private equity”, the Labor Department (which is responsible for the security of pensions and retirement accounts) has proposed new guidelines to allow 40l(k) plans to include those very same instruments in the retirement plans of unsophisticated individuals. They say it is aimed at “democratizing access” to these assets.

The irony is inescapable. The fox is guarding the henhouse! And you are the chickens who will be slaughtered if your company retirement plan decides to offer these risky investments. History shows that not only do they underperform over the long run, but that at the very moment you might need your retirement dollars, these investments lock your money into illiquid situations.

When the idea was first floated to include private investments in retirement plans, I wrote a column immediately and called it a terrible idea. Published on July 13, 2025 – nearly a year ago – the column was headlined “Private Equity Targets Your 40l(k)”.

The opening paragraphs bear repeating:
“Wall Street has a new target. With nearly $9 trillion in assets, 401(k) plans have caught the eye of Wall Street insiders. For years, they have been investing in “private equity” and venture capital deals. They find small, promising companies and lend their capital and management expertise — hoping to sell out in the public stock markets for huge gains.

But in recent years, there has been little opportunity for these insiders to cash in and realize profits to be distributed back to their investors. A slowing market for initial public offerings (IPOs) means many are “stuck” in their deals, with little liquidity.

Stock market volatility, higher interest rates, and a preference for large tech companies have muted deal activity, and the chance to redeploy profits (and fees) into new deals. Those who need to sell out of these deals must take a huge discount because there are so few buyers.

Ordinary investors aren’t aware of this dire situation for Wall Street tycoons, since individuals have been largely prohibited from investing in private equity, unless they can demonstrate they have significant risk capital and financial assets outside the value of their home.

That’s all about to change. Now Wall Street is looking to let ordinary investor get in on these deals — by including them as investment options inside their 401k) plans. And they’re getting help from the current administration.”

Stating The Obvious
In the past nine months, those words have rung true. The “hidden” problem of illiquidity has risen to the surface as the so-called “smart money” tries to get out of their own private equity and debt deals. Many of those high-yielding loans were made to software companies, now under pressure from AI. Suddenly, the returns don’t look so secure. And neither do the investments, raising great concern on Wall Street.

Here’s one headline from the Center for Economic and Policy Research: “Private Equity Investors Are Taking Losses to Cash Out of Investments in Aging Companies.” The report notes that “Last year, global private equity fundraising across private equity strategies fell 12.7 percent to $480.29 billion, according to data from S&P Global Market Intelligence — the third consecutive year that global fundraising declined.”

Yep, they are running out of suckers, so they’re turning to the unsuspecting money in the nation’s retirement plans. They’ve already hit up many pension plans, run by sophisticated investment managers who are supposed to understand risk. But individuals make the decisions in 40l(k) and 403(b) plans. So why not dangle the enticing prospect of higher returns to these novice investors?

History Says Beware
The idea that private equity could generate outsize returns started with the huge Yale University endowment fund in the 1980s, pioneered by then-manager David Swensen. That strategy emphasized heavy diversification into illiquid alternative assets—such as private equity, venture capital, and real estate—over traditional stocks and bonds.

Well, it turns out that a simple investment in the S&P 500 stock index has given a far better return – with lower risk and more liquidity. That is borne out by the real- life strategy of the University of California endowment, run by Jagdeep Singh Bachher, who seven years ago shifted a significant portion of the fund’s assets from hedge funds, private equity and venture capital into low cost stock index funds.

The result, according to a recent Bloomberg analysis: “UC’s new fund, over the three years ended in June, reported a 15% average annual return, thrashing the performance of some of the richest private schools – most notably Yale University, which pioneered the much-copied model of buying illiquid private investments rather than publicly traded stocks and bonds.”

The Bloomberg article goes on to note: “Now, universities are dumping private equity funds at discounts, following years of poor returns, while public stocks have outperformed the asset class.”

Turns out the “smart money” isn’t so smart after all. And now, they’re hoping they can dump those soured deals into your retirement plan. Please don’t fall for this con – even if the Labor Department endorses and promotes it.

I’ll end with a quote from the legendary actor, Paul Newman, who famously said: “If you’re playing a poker game and you look around the table and can’t tell who the sucker is, it’s you.”
That’s the Savage Truth!