Trump signed an executive order that will make it easier for several alternative investments to be added to 401(k) accounts. The list includes private equity, which was previously reserved for sophisticated investors. It’s a proposal that’s raising red flags among some investment experts, who say a 401(k) should typically be a simple and relatively low-risk investment vehicle. Private equity investments, meanwhile, are often concentrated in a small number of portfolio companies, are less liquid than stocks and bonds, and carry valuations that can be difficult to measure day-to-day. “Private equity kind of always gets what it wants in Congress, but I think it’s a bad idea,” Jeffrey Hooke, professor at the Johns Hopkins Carey Business School, said. “It’s illiquid, the fees are very high. Private equity funds, for the most part, don’t beat the stock market.” “I don’t think it’s a good investment for the rank and file retail market,” Hooke added. As higher rates stymie private equity dealmaking, firms are eyeing a liquidity opportunity: gaining access to the $12 trillion 401(k) market. Brian Payne, chief private markets and alternatives strategist at BCA Research, described this development as “an exit ramp for the current situation going on for private equity.” It won’t just be private equity looking for retail exposure — Hooke expects other alternatives like private credit and real estate to follow suit. “It’ll make the retirement plans suboptimal,” Hooke said. “When people retire 20 to 30 years after investing in private equity, returns are going to be a little less than one would expect.” While retirement vehicles typically have longer timelines, reducing the need for immediate liquidity, Payne sees a risk if an economic downturn increases unemployment and forces more people to tap into their 401(k)s. Moody’s Investors Service recently raised a similar concern, noting that retail investor participation in the private markets poses systemic risks. While Payne and Hooke are skeptical about the increased presence of private equity in retail portfolios, it’s unlikely that private equity will comprise a large portion of people’s retirement plans. Experts project around 10% of retirement assets could go toward private equity over time, which means Americans will probably be shielded from dramatic price swings. Glenn Schorr, senior research analyst at Evercore ISI, wrote in a note that corporate sponsors may also be hesitant to invest in private equity vehicles. However, mixing complicated assets like private equity into retirement vehicles is certainly a risky choice.