The Greatest Showman on Wall Street: Coming Soon to Your 401k?

For decades, the most exclusive corner of Wall Street had a velvet rope around it. Private equity and private credit, the business of buying whole companies and lending them money outside the public markets, was reserved for pension funds, endowments, and the very wealthy. Ordinary retirement savers were kept out, and the industry liked it that way. That's about to change, and the change is being sold to you as a gift. It's worth asking who the gift is really for.

Thanks to loosened regulations, more than 90 million savers could soon find private equity and credit funds appearing as options in their retirement plans. The pitch is that everyday Americans will finally get access to the high-return investments the rich have enjoyed for years. The reality is more complicated, and considerably less flattering.

What makes these funds different?

We’re really talking about two different types of funds here, which both operate under the umbrella of “private markets.”

Private equity firms raise money to buy companies outright, usually loading them with debt, cutting costs, and aiming to sell them a few years later at a profit. Private credit firms make loans directly to businesses, stepping into a role that banks have traditionally filled but have pulled back from in recent decades. These equity and debt holdings are then bundled into funds. Because these securities do not trade on the markets like typical stocks or bonds, they operate away from the public eye, which is precisely the point: no daily stock price, no quarterly public filings, far less disclosure than the companies in your index fund.

For big institutions with armies of analysts and decades-long time horizons, these can be reasonable holdings. The question is whether they belong in the retirement account of someone who just wants to retire comfortably and check the balance now and then. That's a very different proposition, and the differences are where the trouble starts.

The standard tradeoffs: high fees and illiquidity

Let’s start with fees. Ordinary index funds have spent decades competing to charge less; you can now own the entire stock market for a few hundredths of a percent a year. Private-market funds have not faced the same pressures and still charge hefty fees for the privilege of managing your money. The classic arrangement charges a 2% annual fee plus a 20% cut of any profits. Even the toned-down versions built for regular investors are strikingly expensive, one such fund posted a net return of about 5.6% in 2025 while charging fees near 3.9%. That single year's fee exceeds what a low-cost index fund charges over an entire decade, and compounded across a working life, fees like that will eat away at returns in a massive way.

Then there's a problem most savers never consider until they need their money back. These investments don’t allow investors to just “cash out” whenever they’d like, and funds are often locked up for years. The newer funds built for retirement plans promise limited withdrawals every quarter, but usually cap them at around 5% of the fund’s total value, and when too many investors ask for their money at once, the fund can shut the door and refuse to let the rest out. That tends to happen at the worst moment, during a market panic, when everyone wants out at the same time.

You’re late to the party and it’s almost over

These tradeoffs might be worth it if the private markets delivered dramatically higher returns, and for years that was the pitch: private markets outran public ones, so the fees and the lack of access were a price worth paying. The trouble is that the outperformance looks increasingly like a thing of the past. Private equity has trailed the S&P 500 across the one-, three-, and five-year periods ending in mid-2025, and one major firm's latest projections put its expected future returns at just three-tenths of a percent above public stocks, a razor-thin edge in exchange for years of locked-up money and the real risk of picking a bad manager.

This is worth dwelling on, because the timing isn't a coincidence. Even as everyday savers are being ushered in, some of the big institutional investors who traditionally funded these deals have been quietly heading for the door, citing those same fading returns. The industry is in need of new capital, and the $12 trillion sitting in America's retirement accounts solves that problem nicely. One strategist described the push into 401(k)s bluntly, as an "exit ramp" for an industry that needs fresh buyers. In other words, Main Street is being invited into the party right as the smart money is deciding it's time to leave, and the historic returns that made the invitation sound so appealing may not repeat.

The bottom line

Whenever Wall Street brings its “latest and greatest” to Main Street, it’s worth being a bit skeptical. None of this means private markets are a scam, or that they can't play a role in a large, sophisticated, long-horizon portfolio. In the right hands, with the right access, they can. But the version being packaged for the typical retail investor is a poor imitation of what the institutions and the ultra wealthy typically get, arriving just as many of those institutions are headed for the exits.

So when one of these funds shows up in your retirement plan, ask the important questions we addressed here: What am I paying? Can I get my money out when I need it? And is there real evidence that these tradeoffs will result in better returns? The pitch is built to dazzle, and it does, but when it comes to your investments remember that the spectacle isn’t the point.

Disclosure

Convivia Financial LLC is a registered investment advisor. This article is for general informational purposes only and reflects the author's opinions as of the date of publication, which are subject to change without notice. Nothing herein constitutes investment, legal, or tax advice, nor is it a recommendation, offer, or solicitation to buy, sell, or hold any security. All investing involves risk, including loss of principal. Past performance does not guarantee future results. Information from third-party sources is believed reliable but has not been independently verified. As of the date of publication, the Firm and/or its associated persons do not hold positions in the securities discussed. Registration as an investment advisor does not imply any particular level of skill or training. For more information about the Firm, including fees and conflicts of interest, please refer to our Form ADV Part 2A available upon request.