It's 3 a.m. and Private Equity is Extending an Invitation to "The Big Club"

Private Equity is ramping up efforts to get at the $12 trillion 401k sector.

Illustration by Daniel Medina

I have worked in capital markets for three decades, and Wall Street has some unflattering names for the retail investor.

Dumb Money.

Slow Moving Deer.

Ray Charles Buyers (Because Ray was blind).

In other words, such investors have been the Rodney Dangerfield of investment money. No respect.

Still, the private equity industry has long dreamed of getting access to the trillions of dollars of retail money, and now it might just get it.

The industry is pushing President Trump to issue an executive order that would, according to the Financial Times, direct the Securities and Exchange Commission and the Departments of Labor and Treasury to “study the feasibility of opening 401k plans” to private equity investment.

This happens to coincide with a period when private equity management firms are particularly desperate. Investors are clamoring for their money while funding for future investments is drying up. The PE industry may not respect the retail investor, but now it needs their cash as opposed to just wanting it.

While some private equity investment was permissible in 401k funds, managers have been reticent to invest due mainly to litigation risk. In 2015, Intel employees sued the company, alleging that its pension fund manager invested in hedge funds and private equity stakes, which in turn according to the complaint were, “unreasonably costly and risky” and underperformed the post-2008 market rally.

The case actually wound its way to the Supreme Court in 2020 before going back to the lower courts, where it was ultimately dismissed in 2022. Nevertheless, the Intel case has been a bright red warning sign for fund managers due to the time and high cost of the litigation. It is thought that a new “feasibility study” by the SEC could give legal cover from potential litigation and would remove the main stumbling block that currently keeps private equity’s hucksters from breaching the walls of retirement funds.

Wall Street is trying to dress up this idea as expanding investment access to everyday Americans. In a March 31 letter to investors, BlackRock CEO Larry Fink preached:

Today, many countries have twin, inverted economies: one where wealth builds on wealth; another where hardship builds on hardship. The divide has reshaped our politics, our policies, even our sense of what’s possible.

Yes, to save ourselves and make gobs of money, we need everyone to invest in private equity! Altruism at its finest.

It’s kind of amusing when you consider that people on the wrong side of the divide that Fink describes have a hard time putting $400 together in an emergency, let alone 401ks to invest in private equity. Fink continues:

Protectionism has returned with force. The unspoken assumption is that capitalism didn’t work and it’s time to try something new.

But there's another way to look at it: Capitalism did work—just for too few people.

Markets, like everything humans build, aren’t perfect. They reflect us—unfinished, sometimes flawed, but always improvable. The solution isn't to abandon markets; it's to expand them, to finish the market democratization that began 400 years ago and let more people own a meaningful stake in the growth happening around them.

It all reminds me of what my dad used to say: Nothing good happens after 3 a.m. Consider the Blackstones, Apollos, Ares and KKRs of the world to be like thugs in the night at 3 a.m., zeroing in on the retail investor stumbling in the dark.

George Carlin’s warning more than 30 years ago is becoming a full-fledged reality.

“They want your fucking retirement money, they want it back so they can give it to their criminal friends on Wall Street, and you know something, they’ll get it, they’ll get it all from you sooner or later. It’s a big club, and you ain’t in it!”

Fink’s Crusades

Fink had another great crusade just a few years ago when BlackRock launched billions of dollars of Environmental Social Governance (“ESG”) Exchange Traded Funds (“ETFs”) and mutual funds to save the planet.

Most of these vehicles were just cruel jokes based on bogus “ESG Ratings” made by the likes of MSCI that did little for the planet except make BlackRock and eventually other investment product companies billions of dollars. Now that many ESG funds have been unmasked as frauds, I suppose it is time to move on to democratizing finance for the common man.

Private equity used to be open mainly to institutional money (pensions, endowments, sovereign wealth funds) and ultra-high net worth investors. Recently however invitations to invest in private equity have been sent to high net worth accredited investors (the working-rich) in what are known as secondary funds. These funds purchase existing private equity stakes from the original limited partners.

With Donald Trump in the White House, PE is making a push for the big win, the $12 trillion 401k sector. In fact, the push started before Trump took office, as this Bloomberg News story notes:

Less than a week before President Donald Trump’s second inauguration, more than 30 money managers gathered on Zoom to strategize about how to pull America’s
retirement savers into investments far beyond stocks and bonds. During the meeting attended by Blackstone Inc., UBS Group AG, Neuberger Berman and others, participants assembled a manifesto articulating private equity’s rightful position in 401(k) plans, including in the default portfolios for workers who don’t select their own investments.

“Rightful position”

Besides private equity investments being illiquid and difficult to value, the risk to the retail investor is that, as private equity honcho Orlando Bravo warned last week, they may be saddled with the worst assets. But the good news?

“Retail investors could end up saving these companies that people cannot sell,” Bravo told the Financial Times.

Meanwhile, Blackstone, KKR and Apollo have already struck deals with large asset managers such as Vanguard, Capitol Group and State Street, according to the FT. They’re already primed in the event that Trump issues an executive order.

As Carlin said, “It’s a big club, and you ain’t in it.” If they are suddenly offering us an invitation to the “Big Club,” I’d be very wary of such an invite.