Key Takeaways
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- The private fund industry is making inroads into 401(k) plans—attracted by the assets in those plans.
- The Trump administration has indicated that it will reduce the requirements for retail investors to invest in private funds (e.g., by lowering the accredited investor and qualified purchaser thresholds).
- It seems likely that private fund investment options will be introduced into 401(k) plans, perhaps not as standalone investments, but as parts of portfolio investment strategies.
- Since most plan sponsors lack the knowledge to prudently select and monitor private funds, they will likely rely on their plan advisers to do the analysis for them.
The private fund industry wants access to include their funds in 401(k) plans. A discussion of the merits of private fund investments is not a subject for lawyers, but instead is for investment experts. However, there are legal issues under ERISA that impact the inclusion of those investments in participant-directed plans. This article discusses some of those legal issues.
While the SEC may—and apparently will—reduce the thresholds for “retail investors” (which includes plan participants) to access private funds, that is for the future. Even then, the SEC may reduce the thresholds, but not eliminate them; in that case, standalone private fund investments would probably not be included in the core lineup of 401(k) plans, since not all participants would be eligible to invest in those options.
Continue reading Things I Worry About (12): Private Funds and 401(k) Plans
