Transcription
If you're worried about saving for retirement, watch this clip carefully.
My own view is that it's not going to end well. And some of these new structures um may not be liquid when things go wrong and they need the money.
That's Josh Harris, a private equity billionaire, warning you about a rule change his own industry just pushed for and is on the brink of winning. But I fear that people don't really understand the risk.
Harris is talking about the Trump administration's plan to crack open the trillions sitting in American retirement accounts. The private equity, private credit, and crypto. Savers don't want this. In fact, some of the financial industry doesn't either.
One hedge fund manager told journalist Bethany McClean, "When I see them going after 401ks, we know it's over and they're going after 401ks." So, why is it happening?
Because private equity is in trouble. To understand why, you have to know the basics of how private equity works. Someone gives them money, they buy companies, they restructure the companies and sell them for a profit. Take a fee that's often pretty high and pay everyone back with what's left over. That payouts called a distribution.
Right now, distributions are running at half of normal times. A big reason is that PE firms overpaid for companies during the boom. And selling now means taking a loss. This year, Bane estimates that the industry is sitting on 32,000 unsold companies. That money is stuck.
Even in good times, private equity locks your money up for years. You can't pull it out on demand. The people who used to fund it, like with Harvard and Yel's endowments, are walking away, which means the industry needs a new pool of money. That is where your retirement savings come in.
401ks have been so far off limits to private equity. The rules say your employer picks what you can invest in, and you can sue them for bad options. Trump's proposed rule changes that. If an investment into private equity or credit goes bad, your employer won't be held responsible as long as they follow a process. But you will lose out.
It gets worse. Morning Star, a firm millions of investors used to rate funds, says it's not even sure how to evaluate these new investments. Unlike public companies, they're opaque. The private equity industry and its sister industry, private credit, have wanted this for years, and they couldn't get it.
Luckily for them, the crypto industry was running into the same problem. People aren't flocking to crypto like they used to.
"Bitcoin has plummeted another, it's down 13% just today. So, it has dropped from 109,000 to 63,500."
Together, they lobbyed a president with significant crypto holdings, and now they're on the cusp of getting access to 401ks. But they're not over the finish line yet. The rule isn't final. There's a public comment period before it takes effect. Go to the link in our bio to tell the administration what you think.