As was previously reported, President Donald Trump is expected to issue an Executive Order allowing savers to include private equity and other alternative assets in 401(k) retirement accounts. It is now anticipated that this EO will be signed and posted today.
By allowing the booming private equity asset class to be held in these retirement accounts, savers will be able to diversify holdings further while tapping into a sector that has generated solid returns for investors. As the number of public firms has declined, private securities and markets have increased, so the move by the White House makes a lot of sense.
Atish Davda, co-founder and CEO of EquityZen – a marketplace for private securities, says this will be a “game changer” and a significant moment for individual investors, particularly those exploring pre-IPO investment opportunities. Davda explains that private securities provide an opportunity for investors to tap into high-growth, pre-IPO companies.
Davda outlines the following reasons why this is so compelling:
- A Natural Fit for Long-Term Horizons. These assets typically have a longer-term horizon, like five to ten years.
- Tax advantages for asymmetric upside. By holding in a tax-deferred account, gains can be realized without incurring immediate expenses.
- Accessing Untapped Value Creation. The number of publicly traded companies has reached a 50-year low. Private equity funds now manage over $8.2 trillion
- Diversification Beyond Traditional Assets. The future standard portfolio may look more like “50/30/20 — stocks, bonds, and private assets
- Investing in the Heart of Innovation. The private markets are home to the companies defining our future.
Davda notes that EquityZen has been available for self-directed IRAs for a long time.
“As the lines between public and private markets continue to blur, staying informed and strategically positioned will be key. This potential expansion into 401(k)s marks another pivotal step towards a more inclusive investment landscape, empowering more individuals to participate in the growth of the world’s most innovative private companies,” says Davda.
Simon Tang, Head of US at Accelex, an alternative investment data enabler, says the move to allow private equity into these retirement accounts is a positive step towards democratizing alternative assets.
“Private markets are no longer the obscure, high-risk investments they once were. They’ve matured into a strong-performing asset class delivering excellent long-term returns, so this is good news for Americans. It’s also good news for fund managers, opening up fresh capital flows at a time when the industry could use a boost,” says Tang. “But there’s a catch: transparency. When it comes to investing in stocks, retail investors are used to instant pricing, clean data, and daily performance updates. Private markets are a different ballgame. There’s no real-time information, no ticker, and no standardisation, just fragmented documents and unstructured formats.”
Tang adds that retail investors are the next big growth sector for private markets while advising private funds and asset managers to improve the clarity of valuations and performance.