Bloomberg Law
Jan. 31, 2022, 3:42 PM

Private Equity Firms Are Winning the Fight for Your 401(k)

Austin R. Ramsey
Austin R. Ramsey

Private equity firms tailoring their products to casual workplace investors are winning repeated legal and regulatory battles in spite of critics who warn that unbridled funds threaten to undermine workers’ 401(k)s.

Intel Corp.‘s retirement plan committee defeated a class lawsuit this month that had been brought by employees challenging a suite of custom target-date funds invested in private companies. The U.S. Labor Department, meanwhile, mostly agreed in December to the terms laid out in Trump-era subregulatory guidance granting self-directed retirement plans permission to trade in off-market securities.

Investing in private companies outside traditional regulatory controls could make or break self-directed retirement portfolios, either leveling the playing field with wealthy investors or bogging down small-time savers with unmitigated risks. Until recently, those risks had outweighed the potential for big returns, but now companies say the pendulum is swinging in their favor.

“We believe this is a settled matter now,” said Robert Collins, who leads U.S private wealth and defined contribution practices at Partners Group AG, a global private equities firm managing some of that retirement money. “The industry wanted a solution and we developed a solution that is professionally managed and has multiple levels of oversight.”

‘Not Just Meme Stocks’

Private equity has historically been an asset class reserved for the big fish on Wall Street. Institutional investors such as banks, insurance companies, and pension plans have the accreditation and economic clout to strike profitable private deals. Retail investors who pick and choose their own investment products have been restricted to publicly traded securities.

Partners Group helped lead a coalition of plan sponsors and asset managers that lobbied the DOL for a favorable opinion on private equity in 401(k)s. That effort culminated in the June 2020 information letter that established guardrails defined-contribution plans could use to add unconventional investments that satisfy fiduciary oversight standards required by law.

“This was about fairness,” Collins said. “This was about giving people access to the entire economy, and not just Amazon, Microsoft, and Facebook—not just meme stocks, but the entire economy.”

Industry leaders worried a Democratic administration would overturn the Trump guidance, but the DOL published a supplemental letter last month that only cautioned against private equity for small, inexperienced plans. The fundamentals of the letter remained untouched.

“Eventually, this is likely to become a standard part of 401(k)s,” said Josh Lichtenstein, a partner at Ropes & Gray LLP in New York who specializes in retirement plan investment management. “I think that, as is often the case, innovations start at the larger plans and then trickle down as there is more of that movement to more mainstream investment options.”

More for Less

Private equity can produce a high rate of return that doesn’t always correlate with liquid securities on public exchanges. In exchange retirement savers pay more and get less access and less information in return.

Private equity funds aren’t registered with the Securities and Exchange Commission and aren’t subject to the same quarterly and annual reporting requirements as public stocks. Investors can’t cash out as easily; deals can lock up funds for sometimes 10 or 15 years at a time.

“In the defined contribution world where investors are there to build a nest egg to retire, they need to know how their investments are performing,” said Angie Chen, a research economist and assistant director of savings research at the Center for Retirement Research at Boston College.

Plans that have incorporated private equity investments use professionally managed vehicles like target-date funds. Those funds, managed by private equity firms, operate on a glide path that reshuffles assets in order to grow over a person’s lifetime and max out at the date of retirement. Investors choose to invest their money in a fund that partially invests in private equity. The fund-of-fund structure shielded Intel Corp.'s retirement plan committee from liability in a federal lawsuit that was decided this month.

A California district court judge ruled that the target-date funds Intel offered its workers couldn’t be distinguished from other TDFs on the market.

But that pass-through option costs extra. Managers often charge upward of 2% on assets under management, and private equity brokers cull 20% of profits.

“It’s not worth it,” said Robert Johnson, an economics and finance professor at Creighton University’s Heider College of Business. “The stock market is a rigged game, but it’s rigged in your favor. If you just invest in a diversified portfolio of U.S. securities and hold them for a long period of time, you’re fine.”

To contact the reporter on this story: Austin R. Ramsey in Washington at

To contact the editors responsible for this story: Andrew Harris at; Martha Mueller Neff at