The private equity industry is underperforming, cannot exit its investments, and cannot return much actual cash to its institutional investors – in large part because the industry since 2022 has consistently overvalued their portfolio companies. Private equity investors are clamoring for cash, and the 401(k)s and IRAs look like just the perfect bailout for the PE billionaires. And the Trump administration is geared to help them – along with other industries like hedge funds and cryptocurrency – at the expense of ordinary workers’ retirement accounts.

The headlines tell the story of their strategy:

Donald Trump Considers Order to Open US Retirement Plans to Private Equity. The administration is debating an executive order that would open 401(k) plans to private equity and other groups focused on corporate buyouts, real estate and other private assets.

Trump Administration Axes Biden-Era Barrier for Crypto in 401 Plans. On May 28, the Department of Labor rescinded earlier guidance to employers to be cautious when adding cryptocurrency and related assets like Bitcoin and meme coins to workers’ 401(k)s.

SEC Chair Signals Investor Access to Private Markets Could Soon Broaden. The chair has directed the SEC to revisit long-standing guidance on who is an accredited investor and can invest in private equity and other private investments — with the aim of weakening the guardrails and opening up these investments to a broader audience. The income and asset thresholds the SEC established for individuals to participate in private investments were intended to protect less sophisticated investors from the risks inherent in investments that are not transparent and lack liquidity.

Access to workers’ retirement savings has long been a goal of the largest private equity firms, including Blackstone, Apollo, and KKR. In the first Trump administration, the Labor Department issued guidance that provided employers with the ability to adopt 401(k) plans that included investments in private equity. But there was little take-up, as investment advisors and employers were afraid of being sued by employees over high fees and disappointing returns. Less than 10 percent of retirement plans offer any kind of alternative investments, and PE investments are available in only 2.4 percent of them. The executive order under consideration would give brokers and employers added coverage to enable them to expand workers’ access to private assets.

Private Equity’s Troubles

More than in earlier periods, the private equity industry needs access to the retirement savings of ordinary people. The industry has been struggling recently. After a banner year in 2021, PE  underperformed the S&P 500 the last five years at one-, three-, and five-year horizons.There was a sharp drop-off in deal activity in late 2022-2023. Deal value and deal count were down from their 2021 highs by 60 percent and 35 percent, respectively, in that time period. Exit value was down 66 percent, and the number of funds reaching their fundraising goals was down by nearly 55 percent. While the declines abated somewhat in 2024, the year proved disappointing for deal making, exits and fundraising.

PE funds have also had trouble returning cash to their investors. Industry experts are sounding alarms about the future of buyout funds that take over companies with the intention of selling them at a profit in three to five years and the billions of dollars their high management fees generate for the PE industry. Buyout funds are the most common type of private equity funds. With sales of these companies taking longer, institutional investors such as pension funds and university endowments that count on annual infusions of cash returns from PE investments to meet their obligations to retirees, students and other stakeholders are strapped for cash. In the absence of high returns and the lack of liquidity, institutional investors have cut back on their private equity holdings and begun selling their private equity stakes. Fundraising experienced a sharp drop in 2024 that has continued into 2025.

In 2025, New York City’s pension system sold off $5 billion of its PE investments across 125 funds to Blackstone. PE returns across the five public pension funds that make up NYC’s pension system ranged from 4.3 percent to 5.4 percent in fiscal year 2024. This was far below public market returns over the same period. Terms of the deal were not disclosed, but it is certain that Blackstone bought the stakes at a discount and the pension funds took a haircut.

Major university endowments are exiting investments in private equity via sales at a discount to a second entity – so-called secondary sales of private equity stakes. The University of California pension system just this year initiated an effort to sell part of its PE stake. Brown University and Harvard, which sold stakes previously, are currently selling them again. Yale University, which had always been opposed to selling stakes in PE funds, recently put billions of its PE investments up for sale. There are many reasons motivating these sales, but secondary sales by endowments and other institutional investors preceded this period and are related to fund performance and the slowdown in exits.

The rate of private equity investors exiting investments has also slowed dramatically. A survey of PE investors conducted before the tariff upheaval found that, in contrast to the usual practice of PE funds liquidating in 10 years and returning the original investment plus gains on sales of portfolio companies within a decade, investors are now waiting longer for their cash. In the survey, 51 percent of respondents said they have been waiting over 13 years for their PE funds to fully liquidate, and 12 percent reported waiting over 15 years. In 2024, total global secondary market transaction volume increased by 45 percent over 2023 levels, to $162 billion. This includes sales by PE partners looking to partially cash out as well as by PE investors.

The slower exits and longer wait times for the return of cash have affected the performance of pension funds and endowments. Despite the promised higher returns last year pension funds and endowments underperformed a low-fee, plain vanilla portfolio of 60 percent stocks and 40 percent bonds.  

Fundraising Woes and Overvalued Assets

Declines in exits have had a chilling effect on fundraising. Sales are largely confined to portfolio companies that PE funds are confident will sell at the asking price and yield a reasonable return. Otherwise, exit channels have iced over. With cash distributions down over the past three years, investors have less to plow back into future PE ventures. As a result, fundraising has been difficult for all but the biggest and best-known PE firms.

Private equity fundraising is still depressed for most PE firms, with a clear demarcation between the industry behemoths and the rest.  Apollo, Blackstone, Ares Management, KKR, Carlyle and Brookfield Asset Management accounted for nearly 60 percent of the industry’s total fundraising in 2024, a huge increase from about 20 percent in 2019.

The industry desperately needs new investors and new sources of capital. PE is hyping investments in private markets as the hot new area for ‘retail’ investors – including ordinary people whose most valuable asset after their house is their 401(k) or IRA. It wants to get its hands on the hard-earned cash in your retirement account – $12.4 trillion in direct contribution accounts ($8.9 trillion of which was in 401(k)s) and $17 trillion in IRAs as of the fourth quarter of 2024.

The industry is hawking the idea that individuals saving for retirement should have the same opportunity as pension funds and billionaires to invest in private market alternatives and reap potentially higher returns. PE firms are developing mass market alternative investment vehicles that provide exposure to a range of private market assets – crypto as well as private equity buyout funds, debt funds, real estate and infrastructure. Exchange-traded funds (ETF) consisting of index funds of public and private assets are a vehicle popular with Wall Street firms. ETFs enable investors to make smaller commitments of money and they promise to provide liquidity to investors who need to draw on retirement savings to deal with health or other emergencies. State Street has developed an ETF backed by Apollo to provide liquidity in case of high demand for withdrawals of cash from the ETF; Vanguard and Blackstone have partnered with Wellington to provide opportunities to include private assets in a particular type of retirement account.

The slippery words in private equity’s appeal to ordinary people saving for retirement are ‘potentially higher returns.’ The industry is unlikely to see returns that beat a plain vanilla portfolio of publicly traded stocks and bonds for the foreseeable future. And it has only itself to blame for this predicament.

A persistent gap between buyers and sellers in the value they place on companies in PE portfolios has made cashing out assets through a sale (either to a strategic buyer or another PE fund, or via a stock market IPO) difficult for many funds. When the S&P 500 declined by almost 20 percent in 2022, PE firms failed to mark the value of their portfolio companies to market. Instead, they used guesstimates of the value of these companies to declare they were largely unscathed by the market downturn. In the short run, this made private equity appear to be a pension plan or endowment’s best performing asset. But in reality, many PE portfolio companies were – and continue to be – overvalued. This has driven a wedge between buyers and sellers: buyers can’t be found at the prices PE firms have been asking.

The dramatic 5.25 percent increase in interest rates between March 2022 and July 2023, as the Federal Reserve System raised rates to bring down pandemic-induced inflation, further complicates the situation. These firms have an inventory of more than $3 trillion worth of companies, many bought at high prices at the height of the PE market when interest rates were low. Much of the debt taken on by these companies is coming due now and has to be refinanced at today’s high rates. Meanwhile, PE firms are unable to unload them because they are unwilling to accept lower valuations for these companies. The result is that many PE funds have been unable to return expected cash payments to investors who would have plowed much of these earnings into future PE ventures.

Where Will the Money Come From?

With institutional investors tapped out — as the PE industry delicately puts it— private equity is looking elsewhere. Wall Street firms, including large banks, PE funds, hedge funds and other asset managers, have been trying for the last decade to get a foothold in the $12.5 trillion market of employees’ retirement savings, including $8.9 trillion in 401(k)s. Fortune notes that there’s been an influx in recent months of mass-market investment vehicles geared to provide ordinary people with ways to invest in private equity and other alternatives. The business magazine provides an example of how this can work: “Empower, which oversees $1.8 trillion in assets for 19 million retail investors, recently announced it is partnering with firms like Apollo Global Management to allow investments in private credit, private equity, and real estate in some of the retirement accounts it administers.”

The PE industry certainly expects the Trump Administration to take the steps to make access to individual retirement accounts possible. But will this benefit individuals saving for retirement? The industry, as we have pointed out, is underwater and looking to the people saving for a dignified old age to bail them out. Industry analysts and academic researchers have questioned whether individual investors’ retirement savings will be boosted by the addition of high fee, nontransparent and illiquid assets to their retirement accounts. The risks, as the Financial Times dryly observes, are not insignificant — including the well-documented concerns about the valuations of companies held in PE buyout funds. The trick to success, apparently, is to “own the right assets, in the right structure, at the right price” – a tall order for someone new to private equity investing, and one that even sophisticated institutional investors have not been able to get right. 

As the Financial Times observes, current efforts to get private equity into the retirement savings of ordinary people come at a time when institutional investors are getting out, when fundraising is down, and when the industry’s assets shrank for the first time in decades. PE returns may look fabulous on paper, but they have so far failed to materialize.

The founder of a major PE firm has raised the possibility that retail investors may be saddled with the worst performing private equity assets. And  there is wider concern that 401(k) accounts may become a dumping ground.

The push for private equity investments in 401(k) plans is not likely to be advantageous for workers saving for retirement. Individual investors will be buying into overpriced assets — and paying high fees to do it. They may get saddled with what the industry refers to as the ‘dogs.’ And the risky and illiquid PE assets in their retirement accounts are likely to underperform a traditional investment of 60 percent stocks and 40 percent bonds. These are outcomes that can be avoided; unfortunately, the Trump administration is poised to make them more likely.