Private equity has traditionally been the domain of institutional investors and ultra-high-net-worth individuals. But that may be changing.
Regulatory guidance from the Department of Labor has opened the door – at least partially – for private equity to be included in 401(k) plans, often as a slice of professionally managed products like target-date funds. It’s not full democratization yet, but it signals a shift: access to private equity investment is moving closer to Main Street.
So why does this matter? Because it’s a sign that private equity is becoming an increasingly normalized part of long-term investment portfolios, and that has implications for investors, for business owners considering an exit, and for the firms guiding them.
What’s Changing in 401(k) Land
For decades, 401(k) plans have focused on public equities and bonds: assets that are liquid, transparent, and easy to price daily. But as savers look for higher returns, and as the universe of public companies shrinks, PE offers an attractive alternative.
The Department of Labor’s 2020 guidance cleared the way for plan sponsors to include private equity in diversified investment options, provided certain safeguards are in place. Several large asset managers have since introduced retirement-friendly PE vehicles.
We’re still early in the adoption curve, with PE investments representing less than 1% of the estimated $12.5 trillion in assets held in defined contribution plans. But with numbers that large, even a small increase in percentage allocation to PE would represent significant new capital.
More Capital, More Awareness
More capital flowing into private markets is a long-term positive for the ecosystem. And for business owners, it could mean:
- A broader and more stable investor base over time
- Increased understanding of private equity as a tool for growth or transition
- A shift in public perception to thinking of PE as a long-term partner in more democratized and accessible wealth-building
That last point is important. As PE finds its way into retirement accounts, the industry’s reputational shift will follow. And that may make conversations with business owners about selling to PE easier and more productive.
The Tradeoffs and the Transparency Question
PE investments are complex, illiquid, and harder to price. Critics point to high fees, lack of transparency, and a mismatch between daily liquidity in retirement plans and long-term capital lockups in PE.
There’s also a risk that retail investors won’t fully understand what they’re exposed to.
But as structures evolve, with evergreen funds, semi-liquid vehicles, and more regulatory oversight, these challenges can be addressed.
So What Should Business Owners Know?
If you’re a founder or family business owner, here’s the bottom line: Private equity is becoming more mainstream. And that’s a good thing for you. It means more buyers in the market. It means more flexible deal structures. It means greater public comfort with PE-backed businesses.
As this trend grows, the line between Wall Street and Main Street continues to blur, and the best-positioned sellers will be those who understand how private capital is evolving.
Let’s Talk
At Align, we help business owners navigate the entire M&A journey, including understanding how PE works, what buyers are looking for, and how to get the best outcome in a competitive process. Whether you’re considering an unsolicited offer or thinking about long-term plans, we can help you unpack your options.