What Are Private Assets and How Could They Change Your 401(k)?

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

If you’ve heard chatter about private equity or “private assets” creeping into retirement plans, you’re not alone.

According to J.P. Morgan, policymakers and plan sponsors are debating whether investments once reserved for institutions and wealthy investors should play a role in everyday 401(k) plans — a discussion that has drawn attention from regulators like the U.S. Department of Labor, which oversees private-sector retirement plans.

The idea sounds complex, but the reality is more nuanced. Find out below what private assets are and how they could change your 401(k).

What Are Private Assets?

Private assets are investments that aren’t traded on public stock exchanges.

Instead of buying shares of publicly listed companies or bonds, investors put money directly into privately held businesses, real estate or lending arrangements. Common examples include private equity, private credit, private real estate and infrastructure projects such as energy or transportation systems.

These investments have long been used by large institutions like pension funds and endowments, rather than everyday investors. Because private assets don’t trade daily, they’re generally less liquid, harder to value and more complex than traditional stocks and bonds. It’s one reason regulators like the U.S. Securities and Exchange Commission (SEC) emphasize investor education around them.

Private Assets Are Now Being Discussed in 401(k) Plans

Private assets are getting more attention because a growing share of economic growth is happening outside public stock markets.

Fewer companies are going public and many stay private longer, which means public-market investors have less exposure to certain parts of the economy.

Large institutions like pensions and endowments have increasingly turned to private investments for diversification, prompting policymakers and industry groups to re-examine whether limited, indirect exposure could make sense in retirement plans.

Industry research organizations such as the Investment Company Institute (ICI) reported that these market shifts are driving renewed discussion about how and whether, private assets might fit into 401(k)s.

Private Assets Inside a 401(k)

If private assets ever make their way into 401(k) plans, most savers wouldn’t be picking them individually.

Instead, any exposure would likely be indirect. They would be folded into professionally managed funds, such as target-date funds, that already combine stocks and bonds. In that setup, private assets would typically represent a small slice of a larger, diversified portfolio rather than a standalone option, according to Vanguard.

Plan sponsors would control whether to include them at all and participants wouldn’t be required to opt in. For now, this remains a potential future structure, not a standard feature of most workplace retirement plans.

How Could Private Assets Change a 401(k)?

For most savers, private assets would not change how a 401(k) functions day to day.

Contributions would still work the same way and participants would likely choose from a familiar lineup of funds. Any difference would occur inside the fund itself. If included, private assets would most likely appear as a small allocation within diversified options such as target-date funds, potentially changing how returns are generated over time.

That could result in smoother-looking performance in some periods, along with higher fees and less transparency. In practice, private assets would not replace traditional investments but would subtly alter the mix behind the scenes.

What Are the Potential Benefits and Risks for Savers?

Supporters argue that private assets could add diversification to retirement portfolios by providing exposure to parts of the economy that aren’t represented in public markets.

Because these investments don’t trade daily, they may also experience less short-term price volatility. However, those potential benefits come with trade-offs. Private assets are typically harder to value, less transparent and less liquid than publicly traded stocks and bonds, according to Odlum Brown. They also tend to carry higher fees.

For everyday savers, the key question isn’t whether private assets are “better,” but whether any added complexity meaningfully improves long-term retirement outcomes.

Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.

Share This Article: