As private equity enters retirement plans, is it too dangerous for …

By Jessica Hall

Private equity could expose investors to greater risks and potentially higher fees

Private-equity investments may be coming to your 401(k) plan in the form of target-date funds, offering a foothold into previously unattainable markets, but the risks and fees may not be worth it.

Investment-management company BlackRock recently unveiled a product that allows 401(k) retirement savers to include private-equity investments in their portfolios, opening the door to an asset class that has previously been the domain of the ultrawealthy and institutional investors.

Great Gray, a U.S. trust company, hired BlackRock to create a target-date retirement fund with private equity and private credit components, along with stock and bond investments. BlackRock said it believes the target-date fund provides a way to generate value while managing risk.

The announcement follows a similar move from State Street, which also offers a target-date fund that includes private market investments, according to The Wall Street Journal. Financial-services firm Empower said in May that it would begin offering private market investments to the retirement plans it manages.

“It’s the democratization of private markets. There has been a significant evolution for the big firms to come down market. Previously, private equity was only available for the uber-high net worth and the like,” said Daniel Milan, investor adviser representative and managing partner at Cornerstone Financial Services.

“The fact that it’s being distributed in a target-date fund is better for the average retirement investors, who may not be fully financially educated, don’t understand the risk-reward balance and may not understand what they’re getting into,” Milan said. “In a target-date fund, the allocation and risk will change as they age. It’s almost like training wheels or dipping your toe in the water.”

BlackRock’s move comes as the private-equity industry has been lobbying Washington for access to retirement funds, which had $7.4 trillion in assets in more than 710,000 401(k) plans on behalf of about 70 million participants as of December 2024, according to the Investment Company Institute.

“Private investment delivers strong returns and is a smart way to diversify retirement portfolios,” the American Investment Council, the private-capital industry’s main lobbying arm, said.

Read: Private equity in 401(k) plans? ‘Highly risky’ for the average investor.

Meanwhile, the U.S. Securities and Exchange Commission’s Office of the Investor Advocate said in June it would look into the use of private equity and other alternative investments in retirement accounts as part of its objectives for fiscal 2026.

In a research paper, BlackRock outlined how incorporating private-equity investments in a target-date fund could add 50 basis points in portfolio returns annually, which, compounded over 40 years, could translate into about 15% more money for a retiree.

“The fact that it’s coming into the 401(k) side, where people’s investing window has a longer duration … this is a step in the right direction. This will allow the average investor access to an asset that has not been attainable in the past,” said Edison Byzyka, a financial adviser and chief investment officer at Credent Wealth Management.

“Having it in a target-date fund makes it less risky and more palatable for the average investor,” Byzyka said. “This is a leap forward to expose investors to an asset class they wouldn’t normally have access to.”

The risk and fees may be too high

Other experts said private equity could expose the average investor to greater risks and potentially higher fees.

“Globally speaking, there’s a lot of risk with private equity,” said Rick Miller, a financial planner and investment adviser at Miller Investment Management. “There’s no transparency. There’s no way for the typical investor to look at the track record. The fees are not transparent, as well.”

Miller added that the potential rewards may not be all that great over 40 years, saying the returns talked about in BlackRock’s own research paper were “not like a home run.”

Ryan Patterson, a financial adviser and chief investment officer with Linscomb Wealth, also had concerns about the risk and complexity of private equity holdings and the potentially high fees associated with such investments.

“In theory, adding private equity has merit, but practically speaking, private equity is illiquid, opaque and often has higher fees with both management fees and performance fees,” Patterson said.

Target-date funds are typically default investments for an average investor, Patterson added. As a result, that may not be the appropriate vehicle to use as an introduction to the complicated world of private equity.

“It adds a layer of risk and complexity,” Patterson said. “I do have concerns about having private equity as the default plan. Diversification is an important thing, but private equity is more of a risk and the fee structure is typically higher.”

BlackRock said it believes the portfolio of the future will comprise 50% public equities, 30% public fixed income, and 20% private markets.

Financial advisers expect other firms to follow with similar products.

“If this proves successful, a plethora of other options will likely emerge,” Byzyka said.

Last year, BlackRock Chairman and Chief Executive Larry Fink said the retirement crisis facing America was so “big and urgent” that government and corporate leaders need to stop business as usual and tackle the problem so that future generations could grow older with dignity.

BlackRock had about $1.7 trillion in defined contribution retirement assets under management as of March 31, 2025.

Read: BlackRock’s Larry Fink calls for urgent national action on retirement crisis

“BlackRock is the largest asset manager in the world. They’re not doing this out of the kindness of their hearts,” Miller said. “It’s an effort to grow their market share and dominance.”

-Jessica Hall

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07-01-25 1111ET

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