This week, American Compass’s Oren Cass published a policy brief criticizing President Trump’s Executive Order released this summer, titled “Democratizing Access to Alternative Investments for 401(k) Investors.” President Trump’s EO aims to give everyday 401(k) savers – the vast majority of working Americans – access to private market investments which have traditionally only been available to wealthy and institutional investors.
Cass, a longtime critic of alternative investment who called Trump’s landmark tax cuts “an expensive failure,” cherry-picks data on PE returns, provides a disingenuous reading of how tax deferrals work, and makes recommendations that would perpetuate an unlevel playing field for American retirement savers.
“The U.S. Private Equity Index provided by Cambridge Associates shows that private equity produced average annual returns of 10.48% over the 20-year period ending on June 30, 2020. During that same time frame, the Russell 2000 Index, a performance-tracking metric for small companies, averaged 6.69% per year, while the S&P 500 returned 5.91%.”
Further, CalPERS, the largest U.S. public pension fund, reports PE as its top 20-year performer, beating public equity with a 14.3% FY 2024-25 return net of fees. CalPERS reports:
“Private equity is just one piece of the puzzle, but it’s an important one. It helps us grow the fund and keep your pension secure for the long term. The results speak for themselves: Private equity has been our strongest-performing asset classes for the last 20 years, delivering billions in profits that help strengthen the pension fund. This asset class has been CalPERS’ top performer over the last 20 years — outperforming public equity. Private equity delivered a 14.3% return in this most recent fiscal year…
With pensions comprising just 20% of retirement assets versus 80% in defined contribution plans like 401(k)s, denying workers access to alternative asset classes perpetuates inequality among the vast majority of retirement savers, preventing average Americans from generating higher returns.
Further, self-directed IRAs (SDIRAs) allow private equity, crypto, and real estate – all tax deferred – and HSAs permit alternative investment options such as real estate, private loans, and precious metals. If these “subsidized” investment vehicles include alternative asset classes without issue, why restrict 401(k)s?
Conclusion:
President Trump’s Executive Order democratizes wealth-building, leveling the playing field between average retirement savers and the wealthy investors who have long enjoyed access to the higher returns and diversifying benefits of private markets investing. Policymakers should codify President Trump’s EO, not reverse course.
That’s exactly what the administration is doing today – as Deputy Secretary of Labor Keith Sonderling made clear last week, stating: “our first and foremost priority is ensuring that the President’s executive order on alternative assets occurs, happens and is done in a way that is going to last for a long time.” Watch video of Sonderling’s remarks here:
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