President Trump's executive order encourages private market investments in defined contribution plans such as 401(k)s, creating an opportunity to reshape retirement saving. Private equity can provide access to private-market growth, offering an illiquidity premium and higher historical returns (Preqin: 14.22% net annualized over 15 years versus 10.25% for the MSCI World Index). Public markets have shrunk and firms are staying private longer, leaving retail investors underexposed. Recent private equity performance has softened, but the asset class can enhance returns and diversify portfolios. The investments entail complexity, limited liquidity, higher fees, and opaque valuations, requiring strong oversight and clear safeguards.
Private equity has a compelling case for inclusion - but one that demands caution. Traditional retirement accounts still focus on public stocks and bonds, even as public markets represent a shrinking share of today's economy. The number of publicly traded U.S. companies has nearly halved since the mid-1990s. Meanwhile, companies are staying private longer. As a result, retail investors are missing out on much of today's economic growth, which is increasingly concentrated in private markets.
Private equity offers a way in, providing access to that private growth and the potential for higher returns. One of its core promises is the "illiquidity premium" - a higher potential return for agreeing to lock up your money for a longer period. Over the past 15 years, Preqin reports a 14.22% annualized net return for private equity, compared to 10.25% for the MSCI World Index.
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