RE: Alts Executive Order lol
RE: Presidential Executive Order on Alternatives in 401(k) plans
President Trump is reportedly considering an executive order to make clearer to the world that it’s ok to invest in Alternatives in 401(k) plans (link to P&I article below).
Here’s a quote from Ali Khawar, formerly at the DOL:
“To the extent the tone, the spirit, the direction that the executive order takes is much more, ‘You'd be an idiot not to invest, that this is always a good investment, and the only way you can go wrong is to not participate,’ then I think it's going to be a problem.”
Let’s have a brief experiment:
For just a moment, try to leave your political opinions/investment preferences at the door.
Also: imagine you are a fiduciary for a 401(k), but you fear no litigation: you can’t be sued for making bad (or expensive) investment choices.
All you want to do is make the best risk-adjusted returns for your fund.
Would you include a private equity option in your 401(k) plan?
A sensible place to start would be to consider historical results of funds of funds (the likely way you’d do this on behalf of your plan). You’d consider:
1. The research that shows that the median PE fund of funds underperformed the S&P 500 (see below link to research).
2. The fact that in the early years, performance of PE was notably better than more recently, and that the degradation in performance coincided with massive industry growth.
3. David Swenson’s (the godfather of Alt investing) advice (to institutions) to avoid alternatives unless you were convinced you had special abilities. You’d also consider his musings on how investors’ interests are very often not aligned with those that sell said investments.
4. Some of the (amazing!) Alt View articles on LinkedIn that highlight the absurd assumptions alt-sellers like Willis Towers Watson, Neuberger Berman, and DCALTA are making in order make it look like Alt-investors always win, in order to grease the sales (and regulatory) wheels, in collaboration with organizations/firms like Georgetown (with the financial support of the Private Equity lobby lol) and Groom Law.
Might you then consider the Ali Khawhar quote differently?
Might you not think: “Well, I voted for Trump, or I work in private equity, or investment consulting, or as a lawyer for investment managers, or whatever. But yeah. Ali Khawhar is right. Alts don’t always win. That’s crazy.”
If Alt investing in 401(k) plans grows, it’s a guaranteed win for the industry. Is it easy for investors?
OPEN YOUR EYES, INVESTOR-FIDUCIARIES!
https://lnkd.in/eAWi76W
On PE returns: “Diversifying Private Equity”
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3535677
Page 32 shows fund summary statistics. Of 295 Funds of Funds with data from 1983-2012, the median public market equivalent was .957 (1=performance was same as the equity market, in this case the S&P 500).
Even the median buyout fund showed a PME of just 1.087 (!)