What to know about private equity in your 401(k)
BlackRock is making private investments available in employer-sponsored retirement plans


Historically, private equity has not been among the investment options available for 401(k) plans. But that could soon change, providing a new opportunity for retirement savers — though also one that may carry substantial risk.
In evidence of this potential shift toward private investments, at the end of June, BlackRock, the "world's largest asset manager," announced that it "plans to offer a 401(k) target-date fund with a 5%-to-20% allocation to private investments," said The Wall Street Journal. BlackRock is the "biggest such provider yet to announce that it will make private investments available" in employer-sponsored retirement plans. Still, it "will be up to employers to decide whether they want to add them," said the outlet. Investors, too, should evaluate the opportunity carefully.
What is private equity?
Private equity is a "form of investment in privately held companies that are not publicly traded on stock exchanges," said SmartAsset, a personal finance blog. Usually, private equity investment is "made through funds pooled from institutional investors or high-net-worth individuals" who are "aiming to acquire ownership stakes in businesses with growth potential." Participation often requires "significant capital" and a certain level of investment knowledge or wealth.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Why is private equity getting added to 401(k)s?
The potential incorporation of private equity into 401(k) investment options would follow an "increasing push to provide more private capital investment opportunities for retail investors and participants in workplace retirement plans," said CNN Business.
Private equity firms "see the $12.2 trillion market for 401(k)-type retirement plans as a way to reach the everyday investors that are crucial to their growth," said the Journal. They also make the case that investors deserve access to these opportunities. According to Jaime Magyera, the co-head of BlackRock's U.S. wealth advisory business, "private assets play an increasingly important role in the global economy," which is "why the company believes it is important to give 401(k) investors access to them," said the outlet.
President Trump has also indicated an openness to allowing the shift. In Trump's first term, the Labor Department "issued an information letter to plan fiduciaries, telling them that private equity may be part of a 'prudent investment mix' in a professionally managed asset allocation fund in a 401(k) plan," said CNBC.
What are the risks of investing in private equity?
Private equity investments "would offer more choices and potentially higher returns" for those investing for retirement, but they also have "significant drawbacks," said Investopedia. "These investments typically carry higher risks, charge steeper fees and offer limited liquidity." They are also "less transparent, making them more difficult to assess than traditional retirement investments."
Further, evidence of the returns is "mixed," according to "academic and industry studies on it," said CNN Business, citing Jason Kephart, the senior principal for multi-asset strategy ratings at Morningstar. This means there is "no guarantee that you will enjoy meaningfully better returns in your portfolio" in exchange for the downsides.
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.
-
Christian extremism: Taking 'holy war' literally
Feature A self-proclaimed minister shot two lawmakers and kept a 'kill list' targeting Democratic officials and abortion providers
-
Iran: Is regime change possible?
Feature The U.S.-Israeli attack exposed cracks in Iran's regime
-
The unsteady pace of Formula 1's US popularity
In Depth The racing sport is immensely popular in Europe but has seen mixed success in the US
-
4 tips to get a lower credit card APR
the explainer Don't let your card's annual percentage rate balloon your balance
-
Who has to pay the estate tax?
the explainer Trump's new bill will permanently shift who owes federal estate tax
-
Does buy now, pay later affect your credit score?
the explainer The company behind the FICO score is going to start including a person's 'buy now, pay later' payment history in its credit models
-
What is credit card churning and why is it risky?
the explainer Churners frequently open new credit cards with the intent of earning a welcome bonus and accessing other perks
-
How quarterly estimated tax payments work and when they are due
The Explainer Freelancers, small business owners and those with a side hustle may need to make more frequent tax payments
-
The downsides of a 'forgotten' 401(k) and how to find it
the explainer Don't leave your old retirement plan behind
-
3 tips to save for a cruise this year
The Explainer The convenience of a cruise doesn't necessarily come cheap without some strategic planning
-
What are Pell Grants and who do they benefit?
The Explainer These are grants, not loans — meaning students do not have to repay the funds, but they must first meet certain conditions