00:00 Speaker A
President Trump gearing up to sign an executive order to open retirement plans to private markets, senior columnist, Carrie Hannon is here with more, Carrie.
00:09 Carrie Hannon
Uh yes, um, the president is expected to sign uh an executive order directing the so the Securities and Exchange Commission to give guidance to mutual fund administrator for to four one K plan specifically administrators of how to add private assets into their retirement account offerings. And this is sort of a big deal. The fact is private assets have been a it’s not illegal to have them in retirement accounts as it is. And pension funds have done this for decades. But the issue is most plan administrators don’t really understand how to fold those into their four one K plan offerings. And there are some really good things about this. So we’ll start with the pro stuff. If you were to put these this can be a variety of assets, right? It can be hedge funds, it can be private, um, uh, real estate things, infrastructure, all variety of things that most people don’t quite get a grip on and to get into those assets you needed to have pretty high net worth or a minimum, the minimum requirement invest was fairly high. So the point is that this could actually help people give them an extra boost in their retirement accounts. It adds diversification to these retirement accounts. And when you think about people are living longer, Social Security shortfalls that people are worried about, cost of living is going up. So for people who are investing for the long run, and Larry Fink at BlackRock said over a 40 year period, these private assets could, you know, return 15% to someone. So this is rather significant if you look at it that way. But if you turn the corner and look the other way, if it’s somebody who is not investing for the long term, they need to get the money out in a shorter time frame. These tend to be fairly illiquid, the fees can be high, and and there’s a concern that people don’t really understand what they are. And I’ll just to finalize that by saying, you know, most people don’t have a clue what they’re investing in anyway. Um, most employers automatically put their their employees in target date funds which are plain vanilla index funds and people set them and forget them. So it will take a lot of education for people to understand and I’m a big fan of people understanding what they’re investing in, but it’s not all a negative thing. These can have some real good boost ultimately over the long run. If someone get a small percentage, I would say you wouldn’t want more than 15% of your portfolio, your retirement savings in private assets.
04:37 Speaker A
All right, Lou, get you in here. So let’s say Lou, I’m private equity now Lou, I’m Blackstone, I’m KKR. And I say to you Lou, you know, all I’m trying to do Lou, I’m just trying to give people more options, I’m trying to give them more choices, right? And more diversification. What’s wrong with, you know, maybe a chance to have a a meteor return? What’s wrong with that?
05:16 Lou
Yeah, I’ll I’ll play this game. I’m with Carrie, there’s a lot of cons, but if you’re BlackRock and KKR, I know this, pension funds and endowments aren’t allocating as much money to you, and there’s a huge pot at the end of the rainbow of about 9 to 12 trillion dollars in four one K accounts that seems really appealing to sell these highly liquid, uh not transparent, high feed products that could or could not outperform the S&P 500. I’m with Carrie, education is paramount. 43% of people only consider themselves financially literate based on our latest Finra study. That’s a lot of people we got to educate before we give them access to things that are really difficult to understand.
06:18 Speaker A
And Carrie, you know, Lou makes very good points as always. What would the private equity guys say Carrie? Would they say listen, you know what? Finance changes, investing changes, public markets change, and you got to change with it and so does your portfolio.
07:00 Carrie Hannon
Well, you know what I got to say? These are coming no matter what. So I think we can talk all we want, but I think this is this is definitely something that is coming down the road. Yes, things do change, but um, you know, the old 60 40 portfolio, which most retirement investors have been encouraged to have over the years, mixture of stocks and bonds, has done pretty well over time. But yes, we are in new times, but I just, you know, I think it’s good to offer some extra uh oomph to people if that’s possible, but it’s it’s a really tricky thing because this is money that people are socking away to really for their futures and and if they do, we see people pulling money out of their retirement accounts right now, you know, taking uh early early distributions, and this would be not a good situation.
08:42 Speaker A
Carrie, great to see you as always. Enjoy the weekend.
08:47 Carrie Hannon
You too.