Private Capital Wants In on Your Retirement Account

We see the arm of a man wearing a suit knocking on a blue door.

Imagine looking into your 401(k) and seeing something new to invest in — a target-date fund promising "alternative exposure" and higher long-term returns. The fine print says part of your savings will be invested in private capital.

Private what?

It sounds sophisticated, exclusive — the kind of strategy used by Yale’s endowment or a Wall Street billionaire. And if the regulators get their way, you might soon have the chance to own a slice of it, too. That’s because federal officials are preparing to make it easier for private capital — a catch-all term for loans and investments in private equity, private credit and other non-traded assets — to enter ordinary retirement accounts.

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The move is being hailed by some as the "democratization" of Wall Street’s most lucrative playground. Others see it as a dangerous experiment that could expose retirees to high fees, murky valuations and money they can’t touch when they need it most.

Recently, I spoke with an executive at one of the biggest retirement and pension managers, and adding private capital to regular retirement accounts was top of mind. A game changer, he called it — but not necessarily for the better.

What exactly is private capital?

Private capital has grown from $1 trillion to nearly $3 trillion in a decade with investments in companies, loans or projects that don’t trade on an exchange. It includes private equity (buying and selling stakes in unlisted firms), private credit (lending directly to businesses) and sometimes real estate or infrastructure — all mostly outside traditional banking oversight.

The pitch is simple: by avoiding Wall Street’s daily volatility, investors can earn an illiquidity premium — higher returns in exchange for locking up their cash. Institutional investors such as pensions, endowments and sovereign wealth funds have been doing it for decades, often with strong results.

Wealthy individual investors have had access, too — through private banks, family offices, and alternative-investment platforms that market private equity and private credit as portfolio enhancers for clients who can meet high minimums and tolerate long lockups.

"Supporters argue that giving everyday investors access to private markets is long overdue."

For individuals, however, the model doesn’t translate as well. Retirees need liquidity, transparency and predictable income — exactly what private capital lacks.

The policy door cracks open

For years, private capital was off-limits to 401(k) participants. That changed in 2020, when the Department of Labor issued an information letter allowing plan fiduciaries to use diversified funds with small allocations to private equity, provided they performed thorough due diligence.

In 2021, the department urged caution, noting that most retirement plans lacked the expertise to vet such complex investments. Then, in August 2025, the department rescinded that warning, signaling a green light for broader access. Around the same time, the Trump White House issued an executive order directing regulators to "democratize" alternative assets in retirement plans.

The financial industry got the message. Firms like BlackRock, Blackstone and Goldman Sachs are designing collective investment trusts (CITs) and interval funds — semi-liquid vehicles meant to fit neatly into 401(k) structures. These funds promise the best of both worlds: exposure to private markets with "managed" liquidity.

Translation: you’ll be able to own a piece of Wall Street’s high-stakes game, but only on Wall Street’s terms.

The case for and against

Supporters argue that giving everyday investors access to private markets is long overdue. Private companies now account for a growing share of corporate America’s profits. If retirement savers are confined to public stocks, they’re missing out.

A Vanguard report last fall said limited exposure could potentially increase returns if investments are managed prudently. A 2025 analysis by the Wharton School suggested that, in professionally run target-date funds, private assets might enhance long-term outcomes for young workers with decades to invest.

But critics say the risks overwhelm the promise. The Center for Retirement Research at Boston College warned that private-equity performance is highly variable and often overstated. "Private equity is not a transparent investment," says senior adviser Alicia Munnell. "It adds unnecessary risk to retirement saving."

The CFA Institute, which certifies financial analysts, is blunter: "Private markets remain inappropriate for most retail investors due to illiquidity, high costs and limited transparency."

What could possibly go wrong? The risks aren’t theoretical.

• Illiquidity: Private funds typically lock up money for 5 to 10 years. Even the new interval funds can “gate” redemptions — capping or suspending withdrawals during stress periods. Retirees who need income often can’t wait.

• Opaque Valuations: Private assets are priced quarterly, based on appraisals or manager estimates. When markets turn, those valuations lag — often until after investors have already taken the hit elsewhere.

• High Fees: Between management charges, performance fees, and fund-of-funds expenses, total costs can reach 3% to 5% annually — 10 times what a basic index fund costs.

• Manager Dispersion: The gap between top-quartile and bottom-quartile private funds is enormous. Institutions spend millions identifying the best managers. Retirement investors get what’s left.

Strategy: What savers should do

If private capital does find its way into your retirement plan, treat it as an experiment — not an invitation.

• Keep allocations small. Any private-asset exposure in a target-date or balanced fund should stay below 5%. If you’re within five years of retirement, less is better.

• Read the liquidity fine print. Quarterly redemption windows can close during downturns. Make sure you understand how — and when — you can get your money back.

• Watch the fees. Ask your plan sponsor to disclose the total expense ratio, including performance fees and sub-adviser costs. If you can’t get a straight answer, that’s a red flag.

• Don’t chase prestige. Endowments hold private equity, but that doesn’t mean you should. They have teams of analysts; you have bills.

• Demand transparency. Ask your employer or plan provider what fiduciary protections are in place. The DOL’s rules may allow private assets, but they don’t reduce your plan’s duty of prudence.

The risk beneath the surface

The stakes go beyond individual investors. A 2025 Equitable Growth report warned that embedding private credit into retirement accounts could amplify systemic risk. If loans sour and redemptions freeze, a wave of gated funds could hit millions of savers at once. This isn’t paranoia. In a downturn, those hidden exposures could surface fast.

That’s the irony: Wall Street sells private capital as diversification. In reality, it can concentrate risk in ways regulators and retirees are only now beginning to understand.

Our take: we've seen this before

If you’ve covered markets long enough, you recognize the pattern. When traditional products mature and margins thin, finance finds a shiny new frontier — and sells it as inclusion. In the 1980s, it was mutual funds. In the 2000s, hedge funds. In the 2010s, crypto.

Now it’s private capital. The rhetoric of “democratization” makes it sound noble, but the motivation is profit. Wall Street doesn’t want to share its best deals; it wants to scale them.

The real test isn’t whether private capital can fit into your 401(k) — it’s whether it should. Retirement investing works precisely because it’s simple, liquid and disciplined. Mixing in opaque, high-fee assets undermines that foundation.

What to do now

• Stick to what you can understand. If you can’t explain an investment to your spouse in two sentences, it doesn’t belong in your retirement plan.

• Favor liquidity. Access to cash isn’t a luxury; it’s protection.

• Be patient. Wait and see how these new products perform in real market conditions. Private capital has its place — just not in the nest egg that you need to finance the rest of your life. When it comes to retirement investing, “exclusive” doesn’t always mean “safe.” Sometimes, it just means you’re the last one to know when the door locks.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

David Weidner is a financial journalist and communications strategist covering the intersection of markets, technology, and personal finance. Over a career spanning more than two decades, he has written for The Wall Street Journal and MarketWatch, where his work reached millions of readers navigating everything from stock market volatility to the rise of artificial intelligence in everyday investing.

He is the creator of CapitAI, a Substack newsletter exploring how AI is reshaping money, markets, and the investor's edge. Drawing on his experience as both a journalist and an advisor to executives and growth-stage companies, he brings a plain-English sensibility to topics that too often get lost in jargon.