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The private equity industry is preparing to pressure the incoming Trump administration to give it access to broad pools of capital that it has historically not been allowed to tap, including retirement savings, in a move that could unleash trillions for its companies.
The $13 trillion industry hopes the new White House will revive the deregulation drive that began in the final months of last year. Donald TrumpThe first US presidency, which allowed private equity investments to be included in professionally managed funds.
Now, the industry is seeking to move beyond that first step, allowing tax-deferred defined contribution plans, such as 401k, to support unlisted investments such as leveraged buyouts, low-rated private loans and illiquid real estate deals, industry executives told the Financial Times. Times.
The effort could give their high-fee funds a chance to tap into a class of investors who have at least as much assets as sovereign wealth funds, pensions and endowments that have traditionally backed the world's largest groups like Blackstone and Apollo, executives said. Global and KKR.
Private equity Non-traded real estate funds have generally been limited to institutional investors or wealthy individuals because they often carry higher leverage, less liquidity, and fewer disclosures than traditional mutual funds and exchange-traded funds. They also generally incur higher fees and have performance metrics that can be difficult to evaluate.
“We will look for opportunities to allow the average investor, if they want to, to diversify their portfolio and have the same access that wealthy individuals have to a private fund,” a Washington lobbyist said. “There are 4,000 publicly traded (US) companies. Most people invest in the market through those companies, but there are 25 million private companies out there.
Industry executives told the Financial Times that the push to deregulate was akin to “doubling demand” for the private capital industry's various funds.
Mark Rowan, CEO of Apollo, described the trillions in assets held by American 401k plans as an opportunity for his industry. He raised concerns about the concentration in index funds owned by retirement savers and questioned whether such investors should be limited to funds that offer daily liquidity.
“I sometimes joke that we've boosted America's entire retirement for the sake of Nvidia's performance. It doesn't sound smart. We're going to fix this and we're fixing it,” Ruane said at an Apollo event this fall. “In the United States, we have between 12 trillion $13 trillion in 401k plans. What have they invested in? They are invested in daily liquid index funds, mostly the S&P 500, for 50 years. Why? We don't know.
Wealthy individuals have flocked to private real estate and lending funds managed by Blackstone, Apollo, HBS, AllRock and others in search of higher returns and diversification into companies not available to general market investors. A record $120 billion will flow into these funds in 2024, according to private fund data specialist Robert A. Stanger & Associates.
However, some private equity industry executives worry that retired savers won't have the ability to distinguish between trustworthy funds and overnight entrants in search of lucrative fees. They recommend that private investments be directed by fiduciaries, rather than by individuals who directly select the funds themselves.
Eugene Scalia, son of the late Supreme Court Justice Antonin Scalia, opened the window for deregulation during the final stages of the first Trump administration. Then, as head of the Department of Labor, Scalia issued an informational letter in June 2020 allowing private equity investments to be part of retirement-oriented holdings such as target-date funds and balanced funds.
“Adding private equity investments to professionally managed mutual funds would expand the range of investment opportunities available for 401(k) plan options,” the department said at the time.
The idea was supported by Jay Clayton, then Chairman of the Securities and Exchange Commission, who joined Apollo's board of directors after leaving office.
Lobbyists and private capital groups are now investigating how to advance Scalia's efforts toward self-directed collective investments. Scalia, who joined the law firm Gibson Dunn after Trump's first presidency, successfully challenged the Biden administration's efforts to increase disclosures and regulations for private market funds.
“We will advocate for a pro-growth regulatory regime that supports small businesses and provides more opportunities for everyday investors,” said Drew Maloney, president of the US Investment Council, the private capital industry's main lobby group in Washington.
Private equity executives believe the incoming administration will be less opposed to private dealmaking, which has been a key target of President Joe Biden's antitrust authorities.
“We will begin working with the Trump administration,” Maloney said.
