U.S. Government Opening Path for Defined Contribution Plans to Invest in Private Equity
Posted on 06/04/2020
The U.S. Department of Labor (DOL) issued guidance that would permit U.S. retirement plans, such as 401(k) plans, to invest in private equity investments as part of diversified investment funds. Historically, U.S. defined pension plans, on both the corporate and public side have been a key source of capital for private equity firms. The DOL disclosed that direct contribution plans are allowed to invest in private equity funds offered through professionally-managed structures such as target-risk, target-date, or balanced funds.
“This Information Letter will help Americans saving for retirement gain access to alternative investments that often provide strong returns,” U.S. Secretary of Labor Eugene Scalia said in a press release. “The Letter helps level the playing field for ordinary investors and is another step by the Department to ensure that ordinary people investing for retirement have the opportunities they need for a secure retirement.”
However, the funds must include private equity only as one of component of their total portfolio, the Department of Labor said. 401(k) plans are estimated to be around US$ 6 trillion in assets.
On May 19, 2020, U.S. President Donald Trump issued Regulatory Relief to Support Economic Recovery Executive Order 13924. President Trump directed agencies “to remove barriers to the greatest engine of economic prosperity the world has ever known: the innovation, initiative, and drive of the American people” in order that we may “overcome the effects the virus has had on our economy.”
