Capital Decanted | S3 Ep 4: Private Markets Are Coming For Your 401(k)

Hosts: John Bowman & Aaron Filbeck
Guests: Dan Cahill (Partners Group), Drew Carrington (iCapital)
Date: January 27, 2026

Overview

This episode takes an unflinching look at the major policy shift enabling private market investments in US 401(k) retirement plans. Sparked by President Trump’s 2025 executive order expanding permissible 401(k) assets and a rapidly evolving landscape, the hosts probe whether democratizing access to private markets is a breakthrough in retirement investing or a Pandora’s Box of risk. They embrace complexity—eschewing black-and-white takes—to examine performance claims, international models, necessary guardrails, and the challenge of equitably opening the “private markets club” to ordinary investors, all while weighing the delicate balance between opportunity and peril.

Key Discussion Points & Insights

1. Where Are We? The Current State & Political Catalyst (00:00–09:00)

• Still Early Days:
  Dan Cahill likens current private market access for DC plans to "spring training." Most plans have yet to provide access—typically only the most sophisticated or resource-rich have done so.

  • "We're at the early innings in terms of adoption because the masses have not been able to take advantage." (00:23)

• Policy Tectonics:

  • President Trump’s August 2025 executive order directs easing of 401(k) restrictions to permit private markets and digital assets, aiming to “democratize” access beyond the exclusive domain of the ultra-wealthy and institutional pensions.
  • Asset managers responded rapidly; mass media and social commentators gave polarizing reactions—either reverential praise or alarmist critique.

• The Central Question:
  Should 401(k) participants have access to private markets? The debate is polarized (“nectar of the gods” vs. “snake oil”) and complex—requiring honest, nuanced analysis.

2. What Are We Solving For? Is There a Genuine Problem? (09:00–16:00)

• Motivation Skepticism:
  Some contend this is a textbook “solution in search of a problem”—a late-cycle, industry-driven “money grab.”

• Fair Access Argument: Drew Carrington emphasizes that unlike institutional peers globally, US DC participants lack access to a full investment toolkit:

  "It's really important to focus on the set of private market asset classes ... the 13 or so trillion in DC plan assets should also have access to that toolkit." (12:01)

• Three Fundamental Issues Identified:

  1. Risk-adjusted Performance—Do private market investments truly enhance returns net of fees (more below)?
  2. Beta Exposure—Public markets no longer represent the full economy: “Most of the enterprise value creation is now happening in private markets.” (36:41)
  3. Civic Equity—Growing consensus that it’s no longer socially acceptable to reserve high-growth investments for wealthy/institutional investors.

  Memorable Quote from Neely Sanghani (Forbes):

  "Complexity shouldn't be an excuse for exclusion. ... Modern economic growth is driven by both public and private capital, and our retirement system should finally reflect the world they're meant to secure." (40:36)

3. Do Private Markets Actually Work? The Performance Debate (16:00–42:00)

• Literature Review:
  Performance studies vary widely—some show a 15% higher retirement balance (BlackRock), others show negligible or even negative performance benefit (Boston College, “Better Markets,” SEC).

  • “All of these ... are classic statistics problems ... we are never comparing apples to apples.” (19:46)

• Dispersion & Methodology Matters:
  Results depend on allocation size, time periods, risk adjustments, and asset categories (PE vs. real estate, etc.).

• Long-Term Outperformance, But Eroding:
  Greg Brown/UNC study (1998–2023) finds US private equity beat public indices by 4% annually after fees, but recent years have seen underperformance. Is this cyclical or a regime shift?

  • "Today in 2025 ... is this a structural reset ... or just another PE cycle that we’ve seen before?" (32:37)

• Diversification Principle:

  • History shows that “power law” concentration isn’t unique to private markets—public markets (e.g., S&P 500's “MAG7”) are also dominated by a handful of winners.
  • “Broadly diversified portfolios ... is always the most prudent investment principle out there.” (31:02)

4. How Do Other Countries Manage This? Global Models & Trade-Offs (42:00–55:12)

• Aaron’s “Participant Trilemma”:

  • Analogy to crypto’s trilemma: DC systems globally cannot maximize all three of: (1) full personal control; (2) institutional-style investing; (3) individual outcomes.

• Three Comparative Models:

  1. AustralianSuper & NEST UK:
     Default-heavy, professionally run, strong allocations to private markets (~27%–30%), minimal participant control.
  2. APG (Netherlands):
     Centralized governance and management, participants do not control investment mix, but bear individual outcomes; 25% private markets.
  3. UniSuper (Australia):
     Greatest participant choice—closest to US 401(k), but less institutional private markets exposure.

• Key Takeaway:
  No system globally gives DC participants complete control together with full “institutional” access and individualized outcomes. US plans must navigate these structural trade-offs to avoid poor outcomes.

5. Why Now? Catalysts for Change (57:43–65:20)

• Timing Factors:

  1. Private markets have matured—broader, more accessible, more “normal.”
  2. New investment products (interval funds, semi-liquid structures) are designed for defined contribution plans.
  3. Social expectations: Everyday Americans interact with private-equity-backed brands—demand for access is rising.
  4. Looming public retirement crisis: Social Security faces insolvency; 401(k)s must work harder to meet retirement needs.
  5. The “Regulatory Ping Pong”:
     • Three administrations (Trump-Biden-Trump) reversed and revised Department of Labor guidance, with the 2025 executive order as a remarkable opening for private markets in 401(k)s.

  “The sad thing here is this should not be a partisan debate, but it’s whoever is in power, rescinds, revises or replaces the guidance of the previous administration.” (63:57)

6. The “How”: Structural Considerations for Successful Access (66:20–89:00)

A. Regulatory Clarity & Fiduciary Duty

Drew Carrington

"The [2025] executive order really gave us a roadmap for how the DOL may address this set of issues. ... The policy stance ... is make it easier for plan sponsors to incorporate a wider array of asset classes..." (66:46)

• Litigation risk for plan sponsors is a major concern.
• DOL’s shifting burden of proof is intended to ease sponsors’ fears.

B. Systemic Differences: Institutional, Wealth Management, DC Plans

• Institutional: Centralized expertise, long horizon, committee-based decisions, absorbs complexity.
• Wealth Mgmt: Hybrid; advisors mediate complexity but clients retain ultimate authority.
• DC Plans: Participant heterogeneity requires constrained complexity, robust defaults, system-level protections.

"You have to make sure your fiduciaries are focused on education and participant engagement ... holding their hand through these really key decision points..." (75:06)

C. Education & Participant Engagement

Dan Cahill

"The most important thing that fiduciaries can do ... is to make sure that they are most prepared for retirement and retire comfortably." (75:50)

• Education must be delivered both at the plan sponsor and participant level.

D. Product Evolution: Evergreen & Semi-Liquid Structures

Dan Cahill

"There are much easier ways for plans of all sizes to access private markets, generally through evergreen portfolios ..." (79:15)

Drew Carrington

"In the defined contribution plan world, the Collective Investment Trust or CIT is ... like this universal adapter. You can put just about anything inside a CIT ..." (80:59)

E. Manager Dispersion Risk

• Private market manager returns are highly dispersed; retirees risk getting only “leftovers” unless gatekeepers have deep expertise and access.
• “The biggest risk is ... the retirement system gets the leftovers. ... The key is that the system ensures that the same offerings are there and that the gatekeepers ... have built the relationships ... with these good managers.” (84:18)

F. Call for Modernized Oversight

Caroline Crenshaw (Former SEC Commissioner)

"If you let retail investors onto the Autobahn, there must be highway patrol." (87:57)

• Regulatory guardrails must evolve in step with increased retail access, a responsibility incumbent on both industry and regulators.

Notable Quotes by Segment

• On Industry Motivation:

  “So to be fair to that constituency that is sniffing greed in the air, you might say the timing of this does not look good ... the optics are not good.” – John Bowman (09:58)

• On Complexity & Control:

  "No model delivers fully on personal control, institutional style investing, or fully individualized outcomes. ... [It's] deliberate structural choices about where complexity, control, and risk are allowed to sit." – Aaron Filbeck (54:52)

• On Performance Studies:

  “If you torture the data long enough, guess what? It will confess to anything you want.” – John Bowman (21:10)

• On Demands for Oversight:

  "Apparently to some, the public-private markets divide should exist only when it's being used to resist regulatory oversight. ... If you let retail investors onto the Autobahn, there must be highway patrol." – Caroline Crenshaw (87:57)

• On Education:

  "It's all about education and making sure people understand what their options are and make the decision on what's best for the participant and not what is the least expensive option." – Dan Cahill (75:50)

Timestamps for Key Segments

• 00:00–09:00 — Scene-setting: Where are we in private markets/401(k) life cycle, policy changes
• 12:00–14:00 — Drew Carrington on fair access and toolkit for DC participants
• 16:00–22:30 — Literature review and performance debate: evidence for/against private market returns
• 31:00–36:30 — Diversification, “power law” in public vs. private markets
• 42:00–55:12 — International models: Australia, Netherlands, UK, participant trilemma
• 57:40–65:20 — Why now? Product innovation, social pressures, regulatory ping pong
• 66:46–69:48 — Regulatory clarity & litigation, Drew Carrington on plan sponsor risk
• 75:50–76:57 — Dan Cahill on fiduciary priorities & participant preparedness
• 79:15–80:55 — Dan and Drew on product structures: Evergreen funds, CITs
• 84:18–87:57 — Guardrails, manager dispersion, regulatory contradictions (Caroline Crenshaw)

Conclusion: What Needs to Be Solved

The hosts argue that expanding private market access in 401(k)s can’t simply be about more products or “checking a box.” It’s about:

1. Regulatory Clarity — Stop the partisan ping-pong and provide long-term direction for plan sponsors and providers.
2. Education — Raise acumen across the value chain, from plan sponsors to everyday savers.
3. Investor Protection — Robust oversight and standards are critical to ensuring “Main Street” participants aren’t stuck with high-fee, low-return “leftovers.”

"If something goes wrong on Main Street, it's over. ... Collectively we're all doing the right thing is something we should embrace." – Aaron Filbeck (88:44)

Tone of the Episode:
Candid, reflective, and objective—eschewing hype or scaremongering, inviting listeners into the nuance, risks, and systemic design features that will determine whether democratized access to private markets becomes a stepping stone to broadly shared prosperity or a cautionary tale of unintended consequences.

For Further Reference:

• Greg Brown et al. (UNC): Direct Alpha in Private Markets (cited segments ~22:30–32:30)
• Caroline Crenshaw, SEC: 2025 Retirement Access Speech (87:57)
• Neely Sanghani, Forbes: “Complexity shouldn’t be an excuse for exclusion.” (40:36)

Listen for more in-depth discussions, industry guest perspectives, and a dissection of both the promise and the peril in the full episode.