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Allowing 401ks to invest in private markets is a bad move at a bad time - Financial Times

This is a nice story, but it masks real potential harms for retail investors and the economy. For starters, the private markets are not as rosy as the industry claims. While some indices show private equity outperforming public markets, academic research suggests that much of that premium disappears once risk and leverage are properly accounted for. So even if retail investors could replicate the industry’s historical average returns, it’s unclear whether those returns would meaningfully improve their risk-adjusted outcomes compared with public-market exposure. A massive influx of 401(k) money would only drive returns down further — a classic “money chasing deals” problem.   

This would be an especially bad time to usher 401(k) investors into private markets and private funds. The market is already saturated with institutional money, and a multi-year bottleneck in deals means that private equity and venture capital funds are struggling to turn their holdings into cash.

Allowing 401ks to invest in private markets is a bad move at a bad time

 

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