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XA Investments LLC (“XAI”) SUBSCRIPTION SERVICE TERMS AND CONDITIONS

These XAI Subscription Service Terms and Conditions (the “Terms”) together with the applicable subscription order form or invoice (the “Order Form”, collectively with the Terms, the “Agreement”), set forth the terms and conditions governing the access to and use of the Service by the licensee entity set forth in the Order Form (the “Licensee”). The term “Service” means certain compiled data, content, and information, documentation, and functionality provided by XAI to Licensee through a subscription service and further described in the Order Form. The term “Order Form” includes any electronic order form made available to Licensee by XAI for the Service.

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Trump’s 401(k) Order Opens Door to Private Equity for Retirees

By Kimberly Flynn, CFA
President, XA Investments
August 15, 2025
Published by Alternatives Watch on August 14, 2025

President Donald Trump’s recent Executive Order (EO) directing the U.S. Securities and Exchange Commission (SEC) to expand access to alternative investments in 401(k) plans will make private equity accessible for the average investor. With the growth of the evergreen alternative products for private wealth, there are now a number of well-scaled private equity interval and tender offer funds that are being considered for inclusion in 401(k) plans. Partners Group, AMG Pantheon and Hamilton Lane have the three largest private equity-focused tender offer funds in the marketplace. 

The interval / tender offer fund market reached a new peak with 288 interval and tender offer funds with a total of $196 billion in net assets as of June 30, 2025, according to XA Investments research.  The private equity category is the second largest including fifty-one interval and tender offer funds with approximately $50 billion in net assets. With innovation in the interval and tender offer fund marketplace, the historical barrier of access to various private markets strategies for individual investors has been removed.

With private equity starting to be offered to a wider investor base, there are several pros and cons for investors to consider:  

Pros and cons of private equity in 401(k) plans

Pros / Advantages:

Patient Capital: Strong time horizon alignment between a retirement savings and the long-term perspective needed to be successful investing in private equity.

Access to Private Companies: US companies are staying private longer and Americans need access to private companies to participate in early growth and innovative technologies in new areas such as Artificial Intelligence or Space/Defense.

Higher Return and Diversification potential: US investors have long been overallocated to US stocks and exposed to more public equity market volatility than if they had been invested in an optimally diversified portfolio. Private equity investment options may help retirees reduce public equity market beta and risk. Endowments and Pension funds with long-term investment horizons have long employed sizable private equity portfolio allocations to drive returns.

Complementary Assets: Strategic mix of public and private securities together in a portfolio may improve diversification and enhance investor outcomes (higher returns with lower volatility).

SEC Registered Evergreen Products Offer Choice: Platform sponsors and investors will be able to choose between various seasoned private equity focused interval funds and tender offer funds by experienced alternative investment managers available in the marketplace today. Interval and tender offer funds are SEC registered products with features like mutual funds such as 1940 Act shareholder protections, 1099 tax forms and increased transparency relative to private funds.

Cons / Risks: 

Manager Skill Drives Outperformance:  Manager skill is wide ranging in private equity investing and manager selection becomes more critical. Manager skill is less important in public equity management since the dispersion between the best and the worst manager is small with the majority of managers hugging benchmarks.

Capacity Constraints: Private equity managers must assess capacity constraints to avoid cash drag and return dilution. Such capacity constraints will naturally limit capital raised and retail participation. To address capacity constraints and to create liquidity, some interval fund managers are pairing private equity securities with public securities. By adding public securities to the mix, the fund’s strategy may depart from the manager’s institutional strategy and performance track record causing confusion in the marketplace and a potential mismatch on return expectations.  Investor education and expectation management are important if the private equity strategy is materially changed or watered down to create liquidity and facilitate redemptions.

Higher and More Complex Fees: Capacity-constrained private equity managers typically charge incentive fees to align performance with incentives. Such incentive fees are typically higher and more complex than passive investment products.

Performance Benchmarking: Financial advisors and investors may struggle to monitor performance of private equity interval funds due to a lack of widely referenced private equity performance benchmarks. A key benefit of adding private equity to the portfolio is the potential for reduced portfolio volatility over time and that can make performance comparisons challenging between different portfolio assets. Sharpe ratios and risk-adjusted returns have not become common parlance for retirees.  

New Risks: Some private equity investments, particularly leveraged buyout funds, rely on significant leverage, increasing the risk profile. Understanding the upside and downside of these additional risks, such as leverage, will be a new endeavor for retirees who decide to invest in private equity.

Because interval funds and tender offer funds are SEC registered investment companies with frequent valuation and 1099 tax forms, these types of private equity funds will be easier to incorporate into existing 401(k) platforms alongside mutual funds. This may mean that as regulators and lawmakers begin to implement the President’s EO, alternative asset managers with established interval and tender offer funds will initially have an advantage in entering the over $12 trillion U.S. defined contribution retirement plan market.

Kimberly Flynn, CFA is President of XA Investments, a Chicago-based firm that provides investment fund structuring and consulting services focused on registered closed-end funds, among other things. XA Investments recently launched the XAI Interval Fund IndexTM (INTVL), a total return index that tracks the interval fund market, helping to address the lack of easily accessible information on the interval fund market. The firm publishes daily interval fund market observations on LinkedIn and produces an in-depth quarterly report on that market, which can be found at www.xainvestments.com

Sources: XA Investments; CEFData.com; SEC Filings.
Notes: All information as of 6/30/2025 unless otherwise noted. The non-listed CEF market is subject to lags in reporting and limited data availability. Data such as asset levels, net flows, and performance are delayed up to 90 days after quarter-end and are not available for all funds. All data in the report is the most current available. Please contact our team if you have any questions about the non-listed CEF marketplace.

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