The Journal. - Private Equity and Crypto Could Be Coming for Your 401k

Episode Date: August 21, 2025

President Trump recently signed an executive order that could make it easier for everyday Americans to invest their retirement savings in assets that lie outside public markets, such as private equity, cryptocurrency and private real estate. WSJ’s Anne Targesen explains how 401ks have evolved, and the risks and rewards of adding these alternative assets to people’s retirement accounts. Oyin Adedoyin hosts. Further Listening:- The Wall Street Craze Jamie Dimon Can’t Resist. Even If It Blows Up.- Private Equity Finally Can Get a Piece of the NFLSign up for WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, everyone, it's Jess. I'm here to say that my colleague, Oyan, Edoyan, will be guest hosting today's episode. Enjoy. These days, the majority of U.S. employees have access to a 401K to save for their retirement, including many of our listeners. My 401K is my retirement fund. Yeah, we look at our 401K like it's our retirement. Everything in the 401K is viewed as a retirement fund for me.

401Ks are tax-advantaged accounts, where both employers and employees can set aside money to be invested for eventual retirement. It's often well worth saving in a 401k if you have access to one. That's my colleague, Ann Turkicen. So you can choose whether to put the money in the stock market, the bond market. And if you don't make a choice, generally the employer will put your money into a portfolio that's a mixture of stocks and bonds. Generally, 401Ks are made up of diverse investments that buffer against risk. They often include U.S. bonds, which are considered one of the safest investments in the world. The fund may go up and down with the markets, but the goal is to give the employees more money in retirement than they put in throughout the years.

But, Ann, aren't there a lot of things that aren't in 401Ks usually? Yes, exactly. Not on that list is, you know, crypto, private equity. hedge funds, these sort of alternative investments. But a few weeks ago, President Trump signed an executive order to change that. A new executive order by President Trump opens the door for millions of Americans saving for retirement through a 401K, who may soon be able to invest in high-risk assets like private equity. There's a feeling that 401K investors are missing out by not having private equity available to them in their 401Ks.

The argument is that you're depriving people of an opportunity to make money in some of the areas where we've seen huge gains in recent years. These assets can potentially be lucrative, but also come with a new set of risks. For example, crypto markets can swing wildly, and private equity or shares of private companies instead of public ones, is a less transparent industry, one that has traditionally only been available to wealthy investors. Something like private equity, for example, there's a lot less liquidity. And the risks are that some of these investments are a lot more volatile even than U.S. stocks. So it can be a wild ride. Welcome to The Journal, our show about money, business, and power. I'm Oyen at Adoyan.

It's Thursday, August 21st. Coming up on the show, Do private assets and crypto belong in your retirement fund? Before the 401K became mainstream, there was the pension. So, Anne, let's start with some history. Okay. My first understanding of retirement accounts came from pensions, back in the day. Can you tell me a little bit about what the traditional pension was like and how it

worked? Oh, yeah. So the pension was sort of a forced savings mechanism. Employers funded pension funds that often covered living expenses and retirement for employees. Here's an old General Electric ad. I only contributed a small part of my earnings toward my pension. The General Electric Company contributed to even more than I did. And as long as you stayed at the company, when you retired, you were basically guaranteed a pension. And often, the longer you stayed, the larger your eventual pension was. They were pretty great for people who stayed at a company for their entire career. For example, my grandfather, he was at IBM for his whole career.

And when he left the company, he was given a very nice pension. But the pension that he was given replaced probably a decent amount of his monthly income. But pensions also have some downsides. Employees were stuck at one company if they wanted to see their full pension after retirement. And for employers, pensions were expensive because they were the ones funding most of the pensions, and generally they had to do so throughout the employee's retirement. In the 2000s, a new law made a different type of retirement plan more popular than ever, the 401K. New accounting rules came in and about 2000s.

2006 that increased the funding requirements and made the amount that employers had to put in every year less predictable. So employers really just backed away from pensions. And I think that, you know, certainly as pensions became something that employers were less willing to offer, the 401K shifted into the mainstream. 401Ks were attractive because the investment accounts came with certain tax advantages. But they weren't initially designed. with everybody in mind. At the beginning, it wasn't intended to be a plan for the masses.

It was something that companies were hoping to offer to their executives so that the executives could save their bonuses and their stock options and a tax kind of advantaged way. That's fascinating. So we're all just walking around with these accidental retirement nestags. Yeah, kind of. A 401K works like this. An employer hires a 401k administrator, like Fidelity and Vanguard, and working together they offer employees a set of investment options, often called a 401k menu.

Then, employees decide, based on their appetite for risk, what kind of portfolio they want. More stocks, more bonds, it's up to the employee. And if the employee doesn't decide, the employer picks an investment option for them. And unlike pensions, 401K funds offer money. a lot more flexibility. The big advantage of the 401k is that it's portable, and when you leave the company, the money still is yours. And you don't have to stay at a company for 25, 35 years in order to earn an adequate retirement income. And I think that for employees, I think that is a huge benefit. Another big benefit is that 401Ks can be set up for passive investing, because

many people, including some of our listeners, have very little idea how their 401K works. So I've been participating in 401Ks for my past and current companies for probably the last decade now, and I really could not tell you a single thing about my 401k investment portfolio. I'm not exactly sure where I'm invested for my 401k. I always assumed that the 401k meant $401,000. I mean, I'll be honest with you, Anne. I cover this stuff now, but just like some of these listeners, I had no idea what was in my 401k until I switched jobs. So, you know, I'm not sure that a lot of people do. Some people are very actively involved in their 401ks.

They, you know, they know a lot about the stock market. They get the right mix of stocks and bonds and, you know, they let it go. But I think these days the vast majority of people are very hands-off. One way that 401Ks allow people to be hands-off is through something called Target Date Funds. When that 2006 law came along, it also sanctioned target date funds as the kind of receptacle for when you automatically enroll someone, payroll deductions will go into a target date fund, which is a mixture of stocks and bonds. Say, for example, you want to retire in the year 2065. You find a target date fund for that year, start out with riskier assets, and reduce the risk over time. They start out much more aggressively allocated to stocks.

So for, say, a 25-year-old employee, they might be put into a target date fund with 90% in stocks. But as that 25-year-old stays at the company gets older, the target date fund is going to shift them so that they're more heavily exposed to bonds over time, less heavily exposed to stocks. So when they get close to retirement, they might have more like a 50-50. portfolio inside the Targetate Fund. As the stock market has gone up in recent years, 401K investors have raised their exposure to stocks, which are more volatile than bonds. So interestingly, we have seen, you know, the percentage exposure to the stock market kind of inch up over the last couple years.

I don't think that's necessarily unexpected. I mean, for one thing, when the stock market does really well, often people forget to rebalance and take some money out of stocks and put it into bonds, you know, they'll sort of let things drift a bit with the market. But we have seen 401K investors taking more risk, stock market risk in recent years. And now, the Trump administration is paving a way for 401K investors to get access to potentially riskier investments. That's next. Since 401Ks are often the main ways that people save for retirement, they are tightly regulated. That's one of the reasons they're most typically made up of stocks and bonds,

and why alternative assets like crypto or private equity are not usually included in 401ks. But Anne says this guidance has started to shift under President Trump. During the first Trump administration, there was a labor department guidance. So this guidance basically said it's okay with us if you want to offer private equity, but we want you to do it within a target date fund or, you know, some other kind of diversified fund. And then when Trump was reelected, private equity, private credit, private real estate asset managers, There was a lot of momentum among all of those players to bring more private market exposure to the 401K plan. And then recently the White House issued an executive order, ordering the Labor Department to work with other agencies to make this possible.

And so the executive order just directs the Labor Department to consult with other federal agencies to figure out what kind of changes are needed to make it easier for private markets. to be adopted within 401Ks. And I think it also sends a signal, right, to employers with 401K plans. Oh, gee, you know, the government is sort of signaling that this is okay. Anne says getting into 401Ks would be great for private markets. The industry really wants in to 401Ks. I think the private markets industry sees a $12 trillion pot of money sitting there in 401. and it's sort of thinking, well, gee, you know, why, why can't we get into that?

So what's the case they're making? They make the argument that, you know, like say with private equity, for example, you have to lock your money up for X number of years, you know, with those funds. You can't just put your money in and then tomorrow, oh, you know, I forgot. I need that money because I have to make a down payment on a house. I'm going to pull it out. No, you can't do that. So with a 401K, that money is meant to be locked.

up, right? For three, four decades, you know, if you're 20 years old and 21 years old and you're starting out at a company, you're looking at four decades in which that money is, at least in theory, off limits to you. So that is long-term money. So the private equity, private markets industry, sees that as a very good fit. And already, some big names are teaming up. State Street, a 401k asset manager, has teamed up with the private equity firm Apollo global management to launch a target date fund. BlackRock is also working on a target date fund that includes private equity. But Ann says that even if these players are on board, it ultimately comes down to whether

employers want to include these assets in their 401 case. A lot of employers, certainly big companies, even medium-sized companies, are very wary about getting sued. That's because, in the past, some companies already offered private. equity in their 401K plans and got sued. Intel was one of those companies. Why did Intel get sued? It's really focused on fees.

Private equity, private credit, private real estate. These types of investments tend to come with significantly higher fees than, you know, just the S&P 500 index funds that are so dominant in 401Ks right now. Intel eventually won its case. But the issue of higher fees in 401Ks remains a big concern. Because the fees are so high, the investments need to earn higher returns to justify those fees. Almost inevitably, an employer that adds some kind of private equity, private markets' exposure to its target date fund is going to pay more for that target date fund. That means the employees are going to pay more for that target date fund.

Here's how some of our listeners respond to that. when we asked how they were feeling about investing in private markets through a 401K. Am I excited or worried about the potential to invest in new things like private equity? I think worried. I'm excited that 401Ks could be opened up to alternative assets. I'm not excited about private equity. I'm really excited to my 401K to invest in things such as private equity. One thing I do know is that I do not want my 401K to start investing in,

any private market or crypto-based investment vehicles. I kind of wish I could have it both ways, like the growth without any of the risks or downsides. Anne has talked to people who are excited about the growth opportunity that comes with adding more investment options to their 401K. People who argue in favor of adding some private market's exposure to the 401K, they view it is a positive, right? They're saying, you know, this sort of age-old argument that diversification

is good for investors. This is sort of the logical extension of it. And, you know, to the extent that we can add more diversification to people's 401k's, they can benefit, right? And as more and more people hear about private equity, she says they may be more willing to take risks. There's no safe investment in a 401K. But the idea is that if you mix these investments together, you can have some offsetting effects that are going to be helpful.

to the investor. Yeah, we can't really predict the future, but it's like, I guess, hedging our bets. Hedging bets is exactly the idea. That's all for today, Thursday, August 21st. The journal is a co-production of Spotify and the Wall Street Journal. Additional reporting in this episode by Miriam Gottfried. A big thank you to those who responded to our call-out about 401Ks.

Although we couldn't get them all in today's episode, we appreciate you sharing your stories with us. Thanks for listening. See you tomorrow.