AIC Expresses Support for Administration’s Swift Action to Give More Americans Access to Private Investment
New White House Council of Economic Advisers Report Highlights Value of Private Investment
Washington, D.C. – This week, the Trump Administration immediately moved forward on its plans to allow all Americans to access private investments in their retirement portfolios.
On Tuesday, the Department of Labor rescinded overly restrictive guidance that stifled the ability for everyday Americans to access private investments to enhance their retirements. AIC President and CEO Will Dunham welcomed this decision and said:
- “By pulling down burdensome guidance and laying out a rigorous report underpinning next steps, the Trump administration is swiftly demonstrating its commitment to strengthening retirement for all Americans.”
Additionally, the White House’s Council of Economic Advisers issued a report on “Retail Access to Alternative Investments Via Defined Contribution Plans” highlighting the many benefits that private investments provide currently to public pension plans, and that should be afforded to all Americans via their retirement plans.
Key excerpts include:
- “Across all age cohorts, we find that an allocation to private equity enhances portfolio risk-adjusted return and increases retirement wealth for defined contribution plan participants.”
- “Over the past few decades, there has been a structural shift in the composition of capital markets away from public markets and towards private markets. While the shift towards private markets is a global trend, it is more pronounced in the US.”
- “Private companies have a much higher growth potential relative to public companies….We observe that most of the increase in the total number of firms is driven by private companies, with private firms comprising a larger share of total firms over time from 62 percent in 2002 to 87 percent in 2022. As a result, the universe of investable opportunities has been significantly limited for retail investors. With the growth in private markets and the fact that most high-growth companies do not IPO until past their peak growth phase, if at all, retail investors are faced with a smaller opportunity set that limits diversification benefits and excludes companies with the highest growth potential.”
- “When benchmarked against the public market, recent academic literature finds that private equity (PE) buyout funds have consistently outperformed the S&P 500 net of fees. Relative to the S&P 500, outperformance of PE (buyout) funds is estimated at 20 to 27 percent over the fund’s life and more than 3 percent annually. Using a risk-adjusted measure of return (Sharpe ratio), our analysis shows a significant benefit for portfolios diversifying into an allocation of private equity and that younger DC plan participants would benefit the most.”
- “Overall, our analysis is consistent with a diversification benefit (higher risk-adjusted return) from adding PE to a traditional portfolio of stocks and bonds. The analysis by age group suggests that the younger age group will benefit the most from an allocation to PE on a risk-adjusted basis.”
Click here to learn how private investment delivers strong returns and is a smart way to diversify retirement accounts.
