Crypto Inclusion in Trump 401(k) Order Divides Private Equity

The private equity industry has a novel bedfellow in a White House executive order that will pave the way for American workers’ 401(k) savings to go beyond stocks and bonds.

When President Donald Trump signed a directive to give the overseers of employees’ retirement savings more legal cover to go into “alternative” asset classes, the list of investments that got his blessings included the usual suspects like private equity and real estate. Crypto made the cut, too.

The inclusion of digital assets in that lineup is forcing the $13 trillion private markets industry to confront what it means to be grouped with a flashier, younger and more volatile arrival.

“Private markets and digital assets are strange bedfellows in this EO,” said Susan Long McAndrews, a former partner at Pantheon who was involved in its 401(k) efforts and now advises other private equity firms. “When it comes to innovating within individual retirement accounts, let the industry rely on decades of experience and data.”

Read More: Bitcoin in 401(k) Plans: What to Know About the Investing Risks

On one side, the industry has argued that lumping private equity with crypto could tarnish the reputation of the alternative investments that the biggest pensions have held for decades. But some advisers and private equity firms argued that including crypto created a helpful marriage of convenience, allowing buyout firms to benefit from Trump’s deep affinity for the digital-asset industry.

At stake is a prized $12 trillion in Americans’ 401(k)-style plans that the private equity firms want to unlock given that some of their longtime investors such as pensions and endowments are tapped out.

Read More: Trump Signs Order Easing Path for Private Assets in 401(k)s

Some lobbyists said it would be self-sabotage to go against the president’s agenda. Trump has repeatedly vowed to make the US the crypto capital of the world and has stakes in the industry himself. His Trump Media & Technology Group Corp., the firm behind Truth Social, acquired about $2 billion in Bitcoin and related securities earlier this year.

Under Trump, the Labor Department said it will no longer urge 401(k) overseers to act with “extreme care” before offering crypto. And last month Congress passed the Genius Act, which helps create a regulatory system for stablecoins.

US President Donald Trump displays the signed bill during a signing ceremony for the Genius Act.

Photographer: Francis Chung/Politico/Bloomberg

The moves smooth the path for private equity firms to test ways of reaching audiences by say, issuing tokens for their funds.

“Over the long term, the interests of the private markets group and the digital assets group are highly aligned,” said Ken McGuire, president at Aditum Alternatives, which advises firms on how to structure and distribute retail private market investments.

Uneasy Relationship

Others were skeptical about the association.

“A portion of the private markets industry was concerned about being lumped in with crypto in the executive order,” said Mark Iwry, a former Treasury Department official and now nonresident senior fellow at the Brookings Institution. “Some have been wary of the speculative nature of crypto, the difficulty most investors have understanding it, and the high-profile conflicts of interest.”

In conversations with senior White House and National Economic Council officials, some private equity firms and their representatives suggested the administration deal with crypto separately rather than tying it in with more-conventional assets already under consideration in the executive order, said two people familiar with the matter.

In the end, Trump’s order didn’t endorse direct holdings of crypto but rather cited “holdings in actively managed investment vehicles that are investing in digital assets,” a nod to the need for a professional gatekeeper.

“Active management brings an extra layer of fiduciary responsibility and curation to crypto,” said Anthony Bassili, president of Coinbase Asset Management, adding that crypto is evolving.

“Digital assets will be less volatile as it continues to be internalized into the global finance system,” he said.

Wall Street heavyweights and crypto’s champions have long had an uneasy relationship that’s complicated the push to get more of those assets into 401(k)s.

During the Biden administration, a proposed bill to give retirement plan overseers more legal cover for investing workers’ savings in private equity went nowhere. Lawmakers balked because the bill deemed digital assets suitable for 401(k)s, according to congressional officials. It made the legislation an even tougher sell to politicians already worried about private equity’s fees and complexity.

This year, differences cropped up when an industry group that advocates for putting private assets in 401(k)s hammered out concepts it hoped would form the backbone of future advocacy efforts.

A handful of members called for language that signaled crypto could be included alongside other alternative asset classes in 401(k)s. But most members in the trade group, the Defined Contribution Alternatives Association, argued that focusing on private assets rather than crypto was the path to take, said people familiar with the matter.

Several hoped to create an “asset neutral” framework, rather than picking winners and losers.

In the end, the framework focused on private markets and didn’t take a stance on whether crypto was suitable for 401(k)s.

--With assistance from Allison McNeely.

To contact the reporter on this story:
Dawn Lim in New York at dlim308@bloomberg.net

To contact the editors responsible for this story:
Amanda Cantrell at acantrell10@bloomberg.net

Erin Fuchs, Isabella Farr

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