Quick Take

Part 1: The Labor Department’s Proposed 401(k) Rule Protects Private Equity, Not Retirees

July 30, 2026

The US Labor Department is close to finalizing a rule that would give private capital firms new access to the 401(k) accounts of 118 million ordinary Americans. That’s an especially risky move right now, because private capital isn’t in good shape. Its two main businesses—buyout funds and private credit funds—are both struggling.

Today’s “private equity” firms should really be known as “private capital” firms. They mostly raise money to do two things: buy companies (through buyout funds) or lend money to companies (through private credit funds). Neither line of business is currently on the upswing. In treating private capital as a magnificent, fresh opportunity for retirement savers, the Labor Department is ignoring both the latest industry reports and the headlines.

Bain’s and McKinsey’s 2026 reports on the buyout sector both keep using the same word: “maturing.” McKinsey warns that slower fundraising and lower returns are here to stay, because they have become “structural features” of an aging industry. Fundraising for new buyout deals plunged 35% from 2023 to 2025. And while the industry insists it still outperforms the stock market, Oxford University economist Ludovic Phalippou argues that private capital funds have not justified their fees in years.

An aging industry might welcome customers who used to be off limits. But the Labor Department’s mission isn’t to drum up business for private equity. It is to protect retirees. And retirees are not the well-connected clients this clubby industry is used to serving.

Bain’s report oddly boasts that “top-quartile” buyout funds keep beating the stock market average. Of course, no one should be surprised that the top 25% beats the 50^th percentile. It’s unlikely that Bain was trying to deceive its sophisticated audience with this odd boast. The more plausible interpretation is that Bain was trying to reassure the well-connected professional investors who are confident that PE firms will only cut them in on the best deals. But this hardly reflects well on the integrity of buyout funds.

In fact, scholars have found that buyouts are rife with favoritism. JPMorgan frankly tells its asset management clients that some “high-quality deals” are only available to preferred investors. On the flip side, the average receptionist with a 401(k) is apt to get stuck with an average buyout fund or worse.

If the 401(k) rule is finalized, retail investors will enter private capital markets just as the ‘smart money’ is hedging its bets. The Financial Times has reported that JP Morgan’s investment bank is negotiating a deal to pay outside investors to absorb losses on $4 billion in loans tied to buyout fund assets. In other words, the Trump administration is rolling out the welcome mat for retirees, just as Wall Street is quietly buying insurance against the same investments.

As their buyout business matures, private capital firms have leaned harder into their private credit arms, which are non-bank lenders. But this business is under pressure too. Some investors that have supplied capital to private credit funds believe that the borrowers relying on private credit are vulnerable, either to AI displacement or to a potential AI crash.

Indeed, in the first half of this year, skittish investors tried to pull $30 billion out of private credit funds and got back less than half that sum, because major private capital firms capped how much investors could withdraw. The New York Times summarized the situation with the headline, “Private Credit Can’t Stop the ‘Freak Out.’” Now does not seem like the moment for mom-and-pop investors to buy in.

Coming soon: Part 2: Private Capital and the Public’s Right to Know. If private capital gains access to trillions more in public retirement savings, then it owes the public transparency.

Values-Based Investing