Wall Street giants are making a bold new pitch to American retirement savers: add private equity to your 401(k) target-date funds for higher returns. BlackRock, State Street, and Empower are all pushing these products, promising an extra 0.5% to 2% in annual returns.
But as I dug deeper into their claims, I discovered some troubling realities that every retirement saver needs to understand.
The Math Doesn’t Add Up
Here’s what they’re not telling you: to achieve their modest promised returns, you’d need to allocate 25% to 50% of your retirement savings to private equity—far more than the 10-20% they’re advertising. That means locking up $25,000 to $50,000 of a $100,000 account for an entire decade.
The Fee Problem
Private equity’s “2 and 20” fee structure (2% annual management fees plus 20% of profits) creates costs that are 10 to 25 times higher than traditional target-date funds. These fees stack on top of your existing fund expenses, potentially pushing total costs to 2.5% or 3% annually on the private equity portion.
The Private Equity Liquidity Trap
Perhaps most concerning is what I call the “liquidity sleeve” problem. These funds must keep 10-20% of assets in cash to handle withdrawals, meaning you’re paying premium private equity fees on money sitting in low-yield cash accounts. The promised return boost evaporates before your eyes.
Recent Performance Reality
From 2022 to 2024, private equity actually underperformed the stock market, earning just 6.8% annually while the S&P 500 delivered 12%. This raises serious questions about whether the added complexity and cost are justified.
Who Really Benefits from Private Equity?
With $12 trillion sitting in American 401(k) accounts and private equity firms struggling to raise capital from traditional institutional investors, some experts are calling this a “bailout”—a way for the industry to access retail retirement money to solve their own liquidity problems.
A Better Path Forward
For most retirement savers, the tried-and-true approach still makes the most sense:
- Keep it simple with low-cost, diversified funds
- Maintain liquidity for life’s unexpected events
- Focus on minimizing fees that compound against you over time
If you want exposure to private markets, consider buying shares of publicly traded private equity firms like Blackstone or KKR—you get the exposure without the fees and liquidity problems.
Watch My Complete Private Equity Analysis
I’ve broken down all of these issues in detail in my latest video analysis. Whether you’re managing your own 401(k) or advising others, this information could protect thousands of dollars in retirement savings.
🎥 Watch the full analysis here:
Your 401(k) should serve your retirement security, not Wall Street’s capital needs. Make sure you have all the facts before making any decisions about private equity in your retirement plan.
Have questions about your retirement planning strategy? Contact me for a consultation.
Disclaimer: This content is for educational purposes only and does not constitute investment advice. Always consult with a qualified financial advisor for personalized guidance specific to your situation.
About Van Richards: Van is a financial planner specializing in retirement security and investment education. He helps individuals and families make informed decisions about their financial future through clear, unbiased analysis.
Connect with Van: Van Richards, ChFC®, RICP® | LinkedIn
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