Private Assets in Your 401(k)? Here are Some of the Risks.

Your retirement nest egg could soon include private assets.

Last August, President Trump signed an executive order clearing the way for alternative investments to be offered more broadly through workplace retirement plans, including 401(k) plans.

The White House promoted the move as a win for everyday savers, arguing that “alternative assets, such as private equity, real estate and digital assets, offer competitive returns and diversification benefits.”

The administration said the policy would open up investment opportunities long reserved for institutional and high-net-worth investors, contending that broader participation could lead to “stronger and more financially secure retirement outcomes” for American workers and help “democratize access” to alternative assets.

Not everyone is convinced.

A recent statement from the Financial Economists Roundtable (FER) warns that expanding access without careful attention to market structure could expose retirement savers to “significant risks.”

Marc L. Lipson, the Robert F. Vandell Professor of Business Administration at the University of Virginia’s Darden School of Business, is a member of the FER and served on the drafting committee for the group’s 2025 position paper, “Expanding Access to Private Capital Markets: Proceed with Caution.”

The statement reflects a consensus reached at FER’s annual meeting in July 2025, where senior financial economists convened to assess the implications of current policy proposals.

A moment of rapid change

Private markets have grown substantially over recent decades, fueled by firms’ preferences to remain private longer and by the expansion of private credit as an alternative to traditional bank lending. As a result, an increasing share of investment opportunities — and risks — now sit outside public markets.

For private-asset giants such as Apollo Global Management and Blackstone, access to retirement savers opens a vast, untapped market. (U.S. workplace retirement plans, or defined contribution plans, including 401(k)s, held $13.9 trillion at the end of the third quarter of 2025.)

The FER statement acknowledges that “advantages may exist for long-term retail investors,” particularly for those with long investment horizons.

At the same time, the economists emphasize that expanding access introduces “well-known investment problems” that are magnified in private markets.

The most significant risks, the statement warns, “include overpaying for private assets, dilution during deposits and redemptions in open-end funds, and harmful real economy disruptions that might arise when extraordinary liquidity demands lead to runs.”

The Appeal and Limits of Private Capital

Practitioners often cite two benefits from investing in private capital: Diversification and higher risk-adjusted returns.

But on the latter, the jury is still out.

“Despite the widespread public perception that private capital has produced higher returns than public capital, evidence is difficult to interpret because appropriate methods for measuring whether returns exceed risk- and illiquidity-adjusted benchmarks are not widely agreed upon,” according to the statement.

“Furthermore, it is unclear whether performance relative to other asset classes has persisted in recent years. Regardless, strong past performance does not necessarily predict future results.”

One commonly cited rationale for investing in private assets is the potential for a so-called “liquidity premium.” Because private investments are harder to sell, long-term investors may be compensated for their patience. The statement notes that this characteristic makes private capital “arguably best suited to retirement funds that are less likely to face unexpected liquidity needs.”

However, the FER cautions that any liquidity premium depends on prices paid at entry. Increased demand, especially if driven by newly eligible investors, can push valuations higher and erode expected returns. In private markets, where “informative market prices are not generally available,” the risk of mispricing is especially acute.

Why Pooled Funds Amplify Risk

Most retail investors won’t access private markets directly. Instead, expanded access is likely to come through pooled investment vehicles managed by professional intermediaries. While pooling can provide diversification and professional oversight, it introduces additional challenges.

The FER highlights a central concern: dilution. When investors are allowed to enter or exit a fund at prices that do not reflect the assets' underlying economic value, value is transferred from long-term investors to those who trade at more favorable times.

This problem exists in all pooled investments, but the statement notes that it is “most serious in the private capital markets due to the challenges of estimating portfolio values in the absence of informative market prices.”

These valuation challenges are compounded by limited disclosure and infrequent transactions. Better-informed investors may time their trades to their advantage, leaving remaining investors worse off.

Liquidity Promises and The Risk of Runs

The most consequential risks arise when illiquid private assets are combined with open-end fund structures that promise frequent redemptions. According to the statement, open-end funds that hold private capital assets are vulnerable to runs when redemption demands exceed the fund’s ability to meet them without selling assets at steep discounts.

Such runs can be self-reinforcing. As investors rush to exit, forced sales depress asset values, creating incentives for even more investors to redeem. The FER warns that these dynamics can have systemic consequences, noting that “a run on a fund can have a systemic impact on the economy” by freezing markets and harming capital users.

The statement adds that “the runs problem” is well known for banks that borrow in short-term deposit markets and invest in illiquid, longer-term, mostly private capital loans.

The analogy to banking is deliberate. Banks, the statement observes, are essentially open-end funds that invest in private capital, and the long history of bank runs offers a cautionary lesson for efforts to expand access to such funds.

Why Structure Matters

A central message of the FER statement is that risk is shaped less by the existence of private capital and more by how access is structured.

Closed-end funds issue shares that investors can trade among themselves the way public companies do. But unlike with more common open-end funds, investors contribute funds and receive distributions in fixed proportions to their share ownership.

(Open-end funds must meet redemptions even when underlying assets are illiquid, and large redemptions force asset sales at fire-sale prices.)

The statement notes that “the dilution and run problems affect only open-end funds” and, accordingly, “regulators should give regulatory precedence to closed-end funds” for holding private capital, while recognizing the tradeoff that such structures limit investor liquidity.

Implications for Policy and Practice

The FER statement does not argue against expanding access to retail investors. Instead, it urges regulators, intermediaries and investors to proceed with caution.

Among its recommendations are restrictions on redemption timing and frequency; greater use of closed-end funds; enhanced, standardized disclosure tailored to fund structure and investor base; fee and fund designs that better internalize liquidity and dilution costs; and targeted guidance for 401(k) investors, especially by age and liquidity needs

As the cover letter endorsing the statement explains, the goal is to “increase the awareness and understanding of public policy makers, the financial economics profession, the communications media, and the public” at a moment when policy decisions could reshape the investment landscape.

For more details, read the full statement, “Expanding Access to Private Capital Markets: Proceed with Caution.”