Article Key Takeaways
-
Why is private equity interested in 401(k) plans?
Private equity fundraising has fallen for three straight years, while exits and investor cash distributions remain historically weak. Defined contribution plans represent one of the largest untapped pools of long-term capital. -
What is the private equity exit problem?
Private equity firms are holding thousands of unsold portfolio companies, and distributions to investors remain well below historical averages despite a modest rebound in deal activity. -
How could 401(k) investors be affected?
New regulations may increase access to private-market investments within retirement plans, but participants and fiduciaries must evaluate liquidity constraints, valuation challenges, fees, and benchmarking difficulties. -
What should retirement committees consider?
Committees should focus on process, costs, liquidity management, valuation transparency, and whether a private-market allocation serves participant interests rather than industry fundraising needs.
Full Article
Private equity fundraising has now fallen for three straight years, and the cash the industry returns to its investors is running at levels last seen in the financial crisis. Against that backdrop, private equity's sudden enthusiasm for your 401(k) deserves a hard look.
A private equity fund runs on a simple loop: raise funds, buy companies, improve them, sell them, return the cash, raise a bigger fund, do it again. Everything depends on the sale. The sale is the door.
Right now, that door is jammed. Exits have been slow for four years, and the cash that's supposed to flow back to investors has slowed to a trickle. When the front door won't open, a business under pressure goes looking for another way in. For private equity, the new door is the roughly $12 trillion sitting in America's defined contribution plans.
The distribution drought is real
Start with the metric that can't be dressed up. Distributions to Paid-In capital (DPI) measure actual cash returned to investors, not paper marks. By Bain's accounting, distributions as a share of net asset value have been running near 14%, a level not seen since 2008–09, and, more tellingly, below the historical average for four consecutive years. MSCI's read is starker still, putting distributions at roughly 6% of buyout AUM against a ten-year average closer to 14%.
The backlog behind those numbers is enormous. By one mid-2026 tally, firms were holding nearly 33,000 unsold portfolio companies worth more than $3 trillion.
Fundraising has followed exits down
Investors re-up out of the cash they get back. When distributions slow, so does the fundraising.
Global private equity fundraising fell to about $480 billion in 2025, down roughly 13% from the prior year and the third straight annual decline, per With Intelligence and S&P Global data. PitchBook's narrower methodology puts it lower still, at $407.5 billion, down from $611.6 billion in 2024. Whichever series you prefer, the trajectory is unmistakable and a long way from the 2021 peak.
And the pain is not evenly shared. In 2025, nine megafunds captured nearly a third of all commitments, while a shrinking club of established, top-DPI names hoovered up what capital was moving. Everyone else is in survival mode. Capital is concentrating, and the managers on the wrong side of that line need a new source of it.
The exit machine has started buying from itself
Follow the plumbing, and the concern sharpens. A sponsor has three ways out of a company: sell it to a strategic corporate buyer, take it public, or sell it to another private equity firm. That last door has long been one of the industry's busiest, and it rests on a reflexive assumption. The buyer is another sponsor spending committed capital, so the channel only stays open as long as fundraising keeps refilling everyone's dry powder. When fundraising bifurcates the way it has, the pool of firms able to write the next check thins from the bottom up.
The loop hasn't broken; there's a record $1.3 trillion of buyout dry powder waiting to deploy, much of it now aging past the point of comfort, but it has seized. The money exists; the willingness to transact at sellers' carrying values does not. When mature portfolios actually changed hands through the secondary market in 2025, they were priced at around 92% of NAV with buyers demanding discounts to the stated marks. The polite term for this is price discovery. The blunter term is that the marks were too high.
None of this means the exits have stopped. They rebounded smartly in 2025. But, much of the equity in those headline sales came from outside private equity's own coffers rather than from the $1.3 trillion dry-powder pile. The trophy assets found buyers; the broad backlog did not. And for the assets that couldn't clear on their own, sponsors reached for a tool that keeps the sale inside the family: the continuation vehicle.
The maneuver is simple. When a sponsor can't find an outside buyer at an acceptable price, it sells the asset to a new fund it also manages, moving the company from one pocket to another, setting the price on both sides of the trade, and booking the result as a "distribution." These GP-led deals reached roughly $115 billion in 2025 and now account for about one in seven sponsor-backed exits. In plain terms, it is a manager grading its own homework and calling the grade liquidity.
The math points to one very large pool
There is exactly one pool big enough to matter: the defined contribution system. Roughly $12 trillion (some counts put it near $14 trillion), the largest and fastest-growing store of long-duration capital in the country, and, until now, almost entirely closed to private markets. Only about 2% of plan sponsors offered any alternative investment at all. As the White House's own executive order framed it, even a modest reallocation of DC assets would represent a tidal wave of new capital for private markets.
The regulatory scaffolding to open that door went up fast. Executive Order 14330 ("Democratizing Access to Alternative Assets for 401(k) Investors") landed in August 2025; the Department of Labor rescinded its cautionary 2021 private equity guidance five days later. On March 30, 2026, the DOL proposed a rule establishing a six-factor, process-based safe harbor for fiduciaries who include alternatives: performance, fees, liquidity, valuation, benchmarks, and complexity.
Here's the part worth sitting with. DC money does not cure the distribution drought. Only exits return cash to the investors already locked in. What new DC inflows do is replace the shrinking institutional base and keep the fee-earning asset base growing while the exit logjam clears. And it supplies exactly the marginal buyer the previous section left hanging, a fresh, captive, price-insensitive demand base for the same continuation-vehicle and secondaries machinery that moved more than $200 billion of assets in 2025. In plain terms, retirement savers could become the buyers of last resort for a backlog that institutional investors are paying to escape.
What does this mean if you sit on a retirement committee
The structural concerns that kept alternatives out of DC menus haven't gone anywhere:
-
Liquidity mismatch. DC participants move in and out daily; private equity locks capital for years. That tension has to be engineered around, and the engineering has costs.
-
Valuation and stale marks. Illiquid holdings are valued infrequently and imprecisely. Participants transacting at those marks may be trading against outdated or optimistic numbers.
-
Fees and carry. Layering private-market fee loads and carried interest onto a participant-directed menu is exactly the kind of cost structure that a decade of excessive-fee litigation has scrutinized.
-
Benchmarking. Current litigation and proposed DOL rules turn in part on whether plaintiffs must identify a "meaningful benchmark" for underperformance. If the courts and your own committee struggle to benchmark these products, so will your monitoring.
Where prudent committees should land
-
Don't confuse a safe harbor with a green light. The proposed rule protects process, not outcomes.
-
Interrogate the "why now." If a provider is bringing you a private-markets sleeve today, the fundraising data above is part of the context. Ask whose problem the product solves.
-
Scrutinize the structure, not the pitch. Liquidity terms, valuation cadence, total fee and carry load, and a defensible benchmark are the whole ballgame. If any of the four is murky, that's your answer.
-
Document independently. Your decision file should reflect your committee's own analysis, not the fund sponsor's marketing deck.
We don't take private equity ownership, we don't sell proprietary products, and we earn nothing whether or not an alternatives sleeve shows up on your menu. That leaves us with exactly one interest in this question: whether these investments belong in your plan. For most plans, right now, the answer is to move slowly, ask hard questions, and keep the burden of proof where it belongs, on the product, not the participant.
Sources: Bain & Company Global Private Equity Report 2026 and Midyear Report 2026; MSCI Private Capital Solutions; McKinsey Global Private Markets Report 2026; With Intelligence / S&P Global Market Intelligence; PitchBook; PwC US Deals; Executive Order 14330; U.S. Department of Labor proposed rule (March 30, 2026); Anderson v. Intel Corp. Investment Policy Committee.
Multnomah Group is a registered investment adviser registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.