Private equity woos Trump for access to retirement funds

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The private equity industry is gearing up to lobby the incoming Trump administration for access to large amounts of cash it has been denied access to for a long time, including retirement savings, for potential leverage. billions for their factories.

The $13tn industry hopes that the new White House will restore pressure from the last months of Donald TrumpThe first presidency, which allowed private investment to be included in professionally managed funds.

Now, the industry is looking to take that first step further, allowing tax-deductible contribution plans like 401k’s to return unlisted investments like foreclosures, low-rate personal loans and illegal commodity deals, industry executives told the Financial Times.

Executives said the effort could give their top funds access to a group of investors with large assets such as private wealth funds, pensions and shares that have traditionally backed the world’s biggest groups. as Blackstone, Apollo. Global and KKR.

Private equity and real estate funds have traditionally been limited to institutional investors or wealthy individuals because they often have higher leverage, less capital and less exposure than traditional funds and currency exchange. They generally have high fees and have performance metrics that can be difficult to evaluate.

“We will look for opportunities to allow the average investor, if they want, to diversify their portfolio and have the same opportunity that wealthy people get from a private fund,” said one expert in Washington. “There are 4,000 publicly traded companies (in the US). Most people invest in the stock market through those companies, but there are 25 million private companies out there. ”

Industry executives told the Financial Times that the regulatory crackdown equates to a “doubled demand” for various private sector funds.

Marc Rowan, Apollo’s chief executive, called the billions in assets held by US 401k plans an opportunity for his industry. He raised concerns about the focus on index funds for retirees and questioned whether such investors should be limited to funds that provide daily income.

“I say jokingly sometimes, we threw all of America’s retirement into Nvidia operations. It just doesn’t seem smart. We’re going to fix this and we’re about to fix it, ” Rowan said at an Apollo event this summer. “In America, we have between $12tn and $13tn in 401k plans. What are they invested in? They have been invested in daily liquid funds, mainly the S&P 500, for 50 years. Why? We don’t know.”

Wealthy people have flocked to private equity and credit funds managed by Blackstone, Apollo, HPS and Owl Rock among others to seek high yields and diversify companies unavailable to public market investors. A record $120bn will go into such funds by 2024, according to private data analyst Robert A Stanger & Co.

However, some executives in the private equity industry worry that pensioners won’t be able to tell the difference between reliable funds and night owls chasing high rates. They encourage private investment to be managed by fiduciaries, rather than individuals choosing their own funds.

The impeachment window was opened by Eugene Scalia, the son of Supreme Court Justice Antonin Scalia, during the latter part of the first Trump administration. Then acting as the head of the labor department, Scalia’s agency issued an Information Letter in June 2020 that allowed private investments to become part of retirement-focused businesses such as mutual funds and mutual funds. measured.

“Adding private investments to such professionally managed mutual funds will increase the investment opportunities available to 401(k) plan options,” the agency said at the time.

The idea was supported by Jay Clayton, then chairman of the Securities and Exchange Commission, who joined Apollo’s board after he retired.

Lobbyists and independent funding groups are already researching how they can advance Scalia’s efforts to invest more. Scalia, who joined the Gibson Dunn law firm after Trump’s first presidency, successfully challenged the Biden administration’s efforts to increase disclosures and regulations on private equity funds.

“We will make the case for a pro-growth administration that supports small businesses and provides more opportunity for everyday investors,” said Drew Maloney, head of the American Investment Council, a leading group. of private industry protests in Washington.

PE executives believe that the incoming administration will not be hostile to private business, which was a primary target of President Joe Biden’s antitrust authorities.

“We’re going to start working with the Trump administration,” Maloney said.