Trump to supercharge private equity with 401(k) order

President Trump on Thursday signed an executive order to allow private equity and other alternative assets into 401(k) retirement accounts.Why it matters: This is a major realignment of the capital markets, and could result in private equity becoming even more ubiquitous.Catch up quick: Federal rules currently prevent most defined-contribution plans from investing in alt assets like private equity, private credit, real estate, and cryptocurrencies. In short, it's considered a breach of fiduciary duty.As such, they mostly invest in stocks and bonds.Trump issued guidance in his first term to relax these restrictions, but the language was later rescinded by former president Biden.Driving the news: Trump's new executive order goes further, giving the Department of Labor 180 days to reevaluate existing rule interpretations and, if necessary, propose regulatory changes.It also asks the SEC to revise applicable rules and guidance to better facilitate retirement fund investments into alt assets.The big picture: This is the holy grail for private equity, both in the U.S. and globally, opening up trillions of dollars in new investment.And it couldn't come at a better time for the industry, which traditionally has been funded by public and corporate pensions, family offices, private foundations, university endowments, and sovereign wealth funds.Many of those longtime limited partners have begun to question their commitments, and even lower allocations, due to a multi-year dearth of distributions. Adding 401(k)s could refill the pot, after several years of fundraising declines.Zoom out: It also could be a giant boon for cryptocurrency markets, with Bitcoin prices rising ahead of the EO signing.Yes, but: It's no sure bet that retirement plan administrators will rush into alt assets.Some may be turned off by the high fees, long-dated investment horizons, redemption restrictions, and lack of transparency. Others may worry that both the crypto and private credit markets aren't yet mature enough.The bottom line: The executive order is directional, so investors must wait for final rules.Editor's note: This story was updated with additional information.

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