Private Fund Insights Blog

The market for investment into private funds has traditionally been limited to institutional investors, high net worth individuals, and similarly sophisticated and risk-tolerant market participants. However, in recent years, a new potential source of capital for fund managers has emerged – 401(k) and other defined-contribution retirement plans. With President Donald Trump’s August 2025 Executive Order on “Democratizing Access to Alternative Assets for 401(k) Investors” (the Executive Order), managers now have a clearer — though far from risk-free — path into soliciting investment from the defined contribution market. The opportunities are real, but so are the operational, legal, and reputational implications for any manager who accepts 401(k) capital. There are also important considerations for traditional institutional investors when making commitments into funds that may also accept investments from defined contribution plans.

How the rules have shifted

To understand where things stand now, it helps to rewind to 2020. That year, the Department of Labor issued an information letter confirming that private equity could be used as a component of diversified, professionally managed investment options in 401(k) plans, such as “target date” or rebalancing funds, rather than as a standalone investment option for plan participants. In that letter, the DOL highlighted several fiduciary issues relating to private fund investments including illiquidity, higher fees, complicated valuation and the need for real sophistication and expertise on the part of plan fiduciaries that may select private fund investment options on behalf of participants.

In 2021, the DOL under the Biden administration published a supplemental statement that sought to clarify that the DOL was not endorsing or recommending investments into private equity and similar private investment funds. That statement had a chilling effect in practice on the opening of private investment markets to defined contribution plans by warning plan fiduciaries against recommending or offering investments into private funds for 401(k) participants given litigation and complexity risks.

Finally, in August 2025, the Trump administration officially rescinded the 2021 supplemental statement as part of a broader push to expand access to alternative assets in retirement accounts, explicitly tying the move to the Executive Order. The underlying 2020 information letter is now back in focus for fund managers and plan fiduciaries as the key piece of DOL guidance regarding investments into private funds. The Executive Order encourages the DOL and the Securities and Exchange Commission to support access not only to private equity and private credit, but also to real estate, infrastructure, commodities and even digital assets within defined contribution plans, primarily through diversified vehicles and qualified default investment alternatives (QDIAs) such as target date funds. It also directs the agencies to explore “appropriately calibrated safe harbors,” though those have not yet materialized in the form of statutory protection or regulatory guidance.

Implications for private fund managers

For managers, the headline is simple (perhaps misleadingly so): there is now a clear policy tailwind for defined contribution plans to invest into private markets. However, no regulatory guidance or statutory efforts have been made to relax the DOL’s core standards regarding investment management by plan fiduciaries, which is generally administered under the Employee Retirement Income Security Act of 1974. The foregoing creates several practical implications.

First, the DOL’s guidance has generally been limited to discussing investments into private assets as a sleeve inside diversified, professionally managed vehicles and not as standalone investment option for plan participants.  The market has responded by emphasizing evergreen and semi-liquid structures, interval-style products, and multi-strategy private market sleeves that can live inside QDIAs or managed accounts. Those vehicles typically cap private markets at a minority allocation, with a liquid sleeve handling daily flows. This means (1) private fund managers are a step removed from interacting with and marketing to plan fiduciaries directly, and (2) much of the complexity deriving from the misaligned liquidity features of many private funds’ portfolios and the needs of plan participants are handled at the QDIA level. As a practical matter, this indicates that fund sponsors will need to tailor marketing efforts to plan fiduciaries administering the QDIAs, rather than using the same pitch approaches traditionally applied to institutions such as pension plans, family offices, OCIOs and other allocators.

Second, the bar on fiduciary due diligence is likely higher for QDIAs than it would be for traditional institutional investors, not lower. Even with the 2021 caution withdrawn, most of the legal and regulatory commentary in recent months has emphasized the need for robust, documented diligence around any private-asset allocation in a 401(k). That would include targeted inquiries into the experience of the fiduciaries or their advisers, fee reasonableness, liquidity modeling, valuation practices, operational resilience and participant communication. The litigation risk is obvious: if performance disappoints, or if fees look rich relative to public options, the structures may face scrutiny in court.

Relatedly, the regulatory environment is still evolving. The DOL has been working under Executive Order timelines to issue follow-on guidance and outreach, while the SEC has publicly engaged with the idea of easing practical barriers to private markets in 401(k)s. Nonetheless, managers can expect additional significant regulatory overlay from the DOL and/or the SEC when it comes to soliciting and taking investments from defined contribution plans. At the same time, lawmakers, industry groups and others have raised concerns about exposing retail savers to opaque, higher-fee strategies and volatile assets commonly included as part of the investment mandate for private investment funds, signaling that any missteps could trigger political and commercial blowback.

What this means for institutional LPs

Institutional investors cannot ignore the implications of manager relationships that may also be courting 401(k) money. The legal and operational profile of the fund can change in ways that matter even if the institution itself is not an ERISA plan. On Oct. 30, 2025, the Institutional Limited Partners Association released a whitepaper called “ILPA Retail Capital Analysis”, which discussed the issue from the perspective of traditional private fund investors.

The ILPA whitepaper called out several potential impacts for traditional LPs, including the following:

• Increased pressure on co-investment availability;
• Reduced effectiveness of fund commitment/subscription caps, since managers may theoretically have access to effectively unlimited sources of co-investment capital via defined contribution plan;
• The potential for conflicts of interest with respect to sponsors’ investment and disposition decisions to the extent the interests of retail investors differ with those of institutional LPs and/or fund management;
• Asymmetric fee burdens for investors, because many fees commonly charged by private funds (such as warehousing fees and broken deal costs) may not be chargeable to QDIAs or other retail investors; and
• Increased compliance expense drag for funds, equally borne by all investors in the fund.

Additionally, a key issue for traditional LPs to consider is how ERISA “plan asset” rules interact with a fund’s investor base. If more than 25% of the fund’s equity interests (excluding the manager’s own interest) are held by “benefit plan investors,” or if a particular ERISA look-through exception is not available, the fund may be treated as holding “plan assets” under DOL rules and regulations. In that case, the manager’s actions are, in effect, ERISA fiduciary acts, with all the associated prohibited transaction and prudence constraints layered on top of the existing securities and fund-governance framework. Institutional LPs should pay close attention to the applicable governing document’s ERISA provisions, any hard or soft caps on benefit plan investor participation, and the mechanisms for monitoring 401(k) inflows so the manager does not inadvertently wander into “plan asset” status during or after the end of a fund’s offering period.

Investor side letters may also become more important in a world where traditional LP capital and 401(k)-sourced capital are comingled. Many institutions seek specific language on ERISA-related reporting, prohibited transaction controls, and conflicts that could arise from target date or other defined contribution vehicles investing alongside them. Most-favored-nation provisions need to be drafted carefully in this context, both to preserve economic parity and to ensure that bespoke promises made to 401(k) platforms (fee breaks, enhanced liquidity or information rights) do not inadvertently disadvantage other LPs.

Operationally, institutions should be asking whether a manager’s reporting and compliance infrastructure can support the needs of an LP investor base that includes daily-valued retirement platforms and evergreen structures. Evergreen and semi-liquid funds aimed at both institutions and 401(k)s can be attractive from a capital-raising perspective, but they also introduce path-dependence and operational complexity for managers. That added complexity is a risk for the entire fund that traditional closed-end LPs need to fully consider before finalizing new commitments.

LPs should also strategically assess how broader access to 401(k) capital might shape the market for fund legal and commercial terms. It is possible that retirement platforms and regulators will push for lower fees, higher transparency and tighter fiduciary oversight, and managers may respond by adjusting or customizing fee structures, reporting practices and even their tolerance for illiquidity and complexity in order to remain attractive to capital coming from defined plans. Those shifts can be positive for all investors, but they may also constrain strategy flexibility or alter return expectations in a way that makes the private fund market start to resemble the market for mutual funds.

Where this is likely heading

The Executive Order clearly set a political and policy agenda around democratizing access to alternative assets, and the DOL, the SEC and trade groups such as ILPA are openly engaging with the question of private market participation by 401(k)s. For private fund managers, accepting 401(k) investments is no longer a theoretical question. It is a live strategic choice that touches everything from marketing efforts during periods of fundraising and operations to litigation risk and investor relations. For institutional LPs, the rise of retail-focused (or at least retail-inclusive) private market products is both a due diligence issue and an opportunity. There may be important regulatory risks for funds that take on investment from 401(k) platforms, but the same discipline and transparency needed for managers to adequately serve 401(k) investors can strengthen governance and alignment across the entire investor base.

Managers and investors interested in learning more about the potential implications of 401(k) investment into private funds should contact a member of Robinson Bradshaw’s Private Funds & Investments Practice Group.