Private credit and equity secondaries are predicted to be the biggest beneficiaries of the inclusion of private assets in 401(k) plans in the US.
President Donald Trump last month signed an executive order to make it easier to include private markets funds in individual retirement plans, triggering much excitement amongst asset managers in the space.
In recent earnings calls, from Apollo Global chief executive Marc Rowan to Carlyle chief executive Harvey Schwartz, many executives highlighted the opportunity in distributing to retirement plans.
Read more: Nearly half of US pension savers would invest in private assets
However, Bill Cox, global head of corporate, financial, and government ratings at KBRA, has predicted that secondary strategies will become the biggest beneficiary of this opportunity because of the eventual realisation that many retail investors will not have the opportunity to access the best-in-class platforms in each asset class.
He noted the plethora of studies that show investing in private markets has boosted the performance of public pension funds, but argued that they mask a fundamental issue, which will be very important when it comes to including funds in 401(k) plans.
“The difference in performance amongst public pension funds has less to do with whether or not they’re allocating to alternatives than to which alternatives they’re allocating to,” he said.
“It’s really about who you allocate to and how volatile or how relative they perform compared to their peers in the private market strategies.”
Read more: US retail allocations to private capital could reach $2.4tn by 2030
Furthermore, without the right tools or the resources, individual investors will not be able to vet the hundreds of thousands of general partners that are out there.
“But secondary strategies theoretically could evolve to absorb the flow of retail money into the broader category of alternatives,” he explained.
It will also be an opportunity that larger alternative asset managers will be able to take advantage of more easily.
“There’s definitely infrastructure that needs to be built,” said Jeremy Swan, managing partner at CohnReznick. “There’s a credibility factor. There are a lot of different aspects of it that would be significantly easier for a Goldman, a Blackstone, and the globally recognized names with significant infrastructure to have the ability to roll this out relatively quickly. That’s the advantage that they have in the market right now.”
Cox agrees that opening up private credit to retail investors will come with a lot of infrastructure, administrative and regulatory burdens that likely will only be able to be addressed by the larger platforms.
The inclusion in 401(k) plans could also create some additional risks for asset managers. Although Swan says it is too early to tell whether it might lead to some lawsuits in the future if anything goes wrong, he added: “We are always in a litigious environment when it comes to the alternative asset classes. Does it increase the ability and potential for additional litigation? Yes.”
But he also noted that it is difficult to say whether that will stop people from investing in private markets.
