Macro Pulse for August 24: Washington Aims to Expand 401(k) Access to Alternatives

Allocation to private markets continues to grow

Following the global financial crisis, lower rates forced institutional investors to seek yield and higher returns from private markets. While today’s environment is marked by higher rates, allocations have continued to rise. For example, McKinsey reports that institutional investor allocations to private markets grew from 21% in 2014 to 27% in 2023. (We explore this trend in greater detail in our semiannual private markets outlook, available here.)

Advances in product design and technology are making private markets more accessible. Evergreen fund structures and digital platforms have fueled strong demand, with wealth investors now one of the fastest-growing segments in private markets. While access to private assets remain limited to accredited investors and qualified purchasers, U.S. policymakers are exploring ways to extend access, including through 401(k) accounts. 

Sources: New York Life Investments Global Market Strategy, August 2025. Oliver Wyman estimates based on company disclosures, filings, and earnings calls, data available through July 31, 2025. Client segments as defined by each individual firm. Note that there may be some differences in perimeter definitions across firms, although efforts have been made to normalize wherever possible when information is available; Wealth including BDCs is based on company disclosures on AUM from wealth/retail channels wherever possible, however where estimates were made using BDC reporting, some institutional capital may be included. Efforts have been made to exclude institutional capital from BDC figures where possible; institutional includes AUM from all other sources. Business development companies (BDCs) are U.S.-regulated investment vehicles that provide debt or equity financing to small and mid-sized private companies, often in the lower middle market.

Executive order on democratizing alternatives

The Trump administration has made expanding access to “alternative assets” a priority. Their definition of alternative assets includes private equity, private credit, real estate, as well as digital assets such as cryptocurrencies, among others. Earlier this month, President Trump signed an executive order that could pave the way for including these assets in 401(k) and defined contribution plans.

The order directs the Department of Labor, the Treasury Department, and the Securities and Exchange Commission (SEC) to reduce regulatory burdens and litigation risks that stand in the way of incorporating alternatives in retirement portfolios. Specifically, it:

• Instructs the Secretary of Labor to consider issuing rules and regulations to clarify fiduciary duties regarding alternative assets in retirement plans;
• Proposes that the Department of Labor consider fiduciary “safe harbors” that may reduce litigation risks;
• Directs the SEC to evaluate revisions to the definitions of “accredited investor” and “qualified purchaser” to expand access to alternative assets.

The Department of Labor has 180 days to issue these proposals. While the final rules remain uncertain, the implications for private markets and long-term investors could be significant.

When might alternatives appear in retirement accounts?

In truth, alternatives have always been allowed – but adoption has been limited.

The bigger barrier has been plan sponsors’ caution: higher risks, complexity, lack of transparency, and elevated fees have made alternatives less appealing. The new policy may provide added comfort to plan administrators, but at the end of the day, it’s employers who decide what options appear in plans.

Should private assets be part of retirement portfolios?

Retirement portfolios are, by nature, built for the long-term. Most investors don’t need 100% of their assets to be 100% liquid 100% of the time.  That opens the door to align portfolio design with longer-dated strategies like those found in private markets. 

Looking back over the past 15 years, retail retirement investors have largely been excluded from private markets – missing out on earlier stages of corporate value creation that are typically captured before public offerings. Broader access could enable participation in more "main street" economic growth. 

Yet, greater access doesn’t mean universal suitability. The next 15 years will likely look different than the last. Investors must be selective and informed: 

• Return dispersion is rising in private markets, while overall return potential may diminish as more capital enters the space. 
• Higher macroeconomic volatility, including persistent inflation and interest rate shifts, demands more rigorous manager and strategy selection. 
• The increasing size and maturity of large private funds may reduce their diversification benefits versus public market counterparts. 
• Cost, tax complexity, and liquidity constraints remain high – potentially eroding the illiquidity premium over time. 

Portfolio strategy

We believe the most attractive opportunities for retirement portfolios will be those that enhance diversification and provide exposure to parts of the real economy underrepresented in public markets.

For U.S. retirement investors, this may include considerations such as:

• Access to smaller “main street” companies, which are not available in public indices as even U.S. ‘small caps’ are not small companies.
• Investment in more localized business models, with less exposed to global developments or geopolitical risk.
• Exposure to earlier stages of value creation, where competitive dynamics are less efficient, offering long-term value creation.

Currently, we see the lower middle market as offering the strongest potential for these goals: diversification, resilience, and long-term value creation.

Importantly, while the policy shift is aimed at retail investors, the ripple effects will extend across the private markets ecosystem. Asset managers are accelerating the creation of evergreen and interval products. At the same time, institutional investors are voicing concerns that retail investors – who often face higher fees – could crowd them out of the most attractive deals. This tension highlights why we’re approaching the topic with care.