Private equity to lobby Trump to get savers’ pension funds

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The private equity industry is bracing for the incoming Trump administration’s move to unlock trillions of dollars for their companies, including retirement savings, to access a vast pool of capital they have historically been denied access to.

The $13tn industry is hoping the new White House will reinvigorate its regulatory push in recent months. Donald TrumpFirst president to allow private equity investments to be included in professionally managed funds.

Now, the industry is looking to bypass that first step, allowing tax-deferred defined contribution plans like 401ks to fund unlisted investments like leveraged buyouts, subprime personal loans and illegal real estate deals, industry executives told the Financial Times.

The executives said their efforts could give their high-paying funds a chance to hit at least part of the investors who back the world’s biggest groups, such as sovereign wealth funds, pensions and endowments such as Blackstone, Apollo. Global and KKR.

Private equity And non-traded real estate funds are generally reserved for institutional investors or wealthy individuals because they often hold higher leverage, with less and less disclosure than traditional mutual funds. They also generally carry higher fees and have performance metrics that are difficult to evaluate.

“We want opportunities to allow average investors to diversify their portfolios and have the same access that wealthy individuals do to private funds,” said one Washington lobbyist. “There are 4,000 publicly traded (US) companies. Most people are invested in the market by those companies, but there are 25 million private companies out there.

Industry executives told the Financial Times that the regulatory push is tantamount to a “doubling of demand” for the private equity industry’s diversified funds.

Apollo CEO Mark Rowan called the trillions in assets held by US 401k plans an opportunity for the industry. He raised concerns about the concentration of index funds owned by retiree savers and questioned whether such investors should be locked into funds that provide daily liquidity.

“Sometimes I jokingly say, we’re going to spend America’s entire pension on Nvidia Performance. It just doesn’t seem smart. We’re going to fix this and we’re in the process of fixing it,” Rowan said at an Apollo event this fall. “We have between $12tn and $13tn in 401k plans in the US. What are they invested in? Daily liquid index funds typically invest in the S&P 500 for 50 years. why? We don’t know.

Wealthy individuals have flocked to private real estate and credit funds managed by Blackstone, Apollo, HPS and Owl Rock to seek higher yields and to include companies unavailable to public market investors. In the year A record $120 billion will flow into such funds by 2024, according to private fund data expert Robert A. Stanger & Co.

However, some private equity industry executives worry that retirement savers lack the ability to distinguish between reliable funds and late-night incomers chasing lucrative payouts. They recommend that private investments be managed by trustees rather than individuals choosing their money directly.

The oversight window was opened late in the first Trump administration by Eugene Scalia, son of former Supreme Court Justice Antonin Scalia. Then serving as head of the Labor Department, Scalia’s agency issued an information letter in June 2020 allowing private equity investments such as target date funds and balanced funds to be part of retirement-focused holdings.

“Increasing private equity investments in such professionally managed mutual funds will increase the investment opportunities available to 401(k)-type plan options,” the department said at the time.

The idea was supported by Jay Clayton, the chairman of the Securities and Exchange Commission at the time, who joined Apollo’s board after leaving office.

Lobbyists and private equity groups are studying how to channel Scalia’s efforts into crowd-sourced investments. Scalia, who joined law firm Gibson Dunn after Trump’s first presidency, successfully resisted the Biden administration’s efforts to increase disclosures and regulations for private equity funds.

“We make the case for a pro-growth regulatory regime that supports small businesses and gives everyday investors more opportunity,” said Drew Maloney, head of the American Investment Council, the private capital industry’s main lobbying group in Washington.

PE executives believe the incoming administration, a central target of President Joe Biden’s antitrust authorities, will be less hostile to private deals.

“We hit the ground running to work with the Trump administration,” Maloney said.