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Congress Will Open Private Markets to Everyone, Next Year — Barrons.com

Dow Jones Newswires

Brookfield Asset Management

-1.47%

Affiliated Managers

-0.98%

Apollo Global Management

By Bill Alpert

The legal barriers that keep everyday investors from pursuing alternative assets — or the other way around — should fall over the next year. The White House, Congress and federal agencies each seem willing to clear their stretch of the track.

That is the prediction of a new study by TD Cowen, whose Washington watchers handicapped the race for upward of $5 trillion in new money. Contenders to manage those assets include players such as Apollo Global Management, Affiliated Managers Group, Blackstone, BlackRock, Brookfield Asset Management, and KKR.

By the end of 2026, Congress will relax the qualifications for investing in private equity and credit, the TD Cowen analysts say. Cowen also predicts that President Donald Trump will order retirement rule changes at the Department of Labor and tell the U.S. Securities and Exchange Commission to loosen investment restrictions at closed-end funds.

"Legislation takes time to move through Congress," says the report. "This year is about setting the stage for enactment of these provisions in 2026."

In 1980, Congress restricted sales of private investments to "accredited investors" with high income and net worth. It tightened those qualifications in 2010, after the 2008-2009 financial crisis.

Today, an accredited investor must have $1 million in household assets — not counting their home equity — and annual income above $200,000. The minimum for couples is $300,000. Those numbers open the door to products like Blackstone's BREIT Real Estate Income Trust or Blue Owl Capital's ORENT Real Estate Net Lease Trust, where limits on withdrawals make the investments only semiliquid.

Traditional private-equity vehicles are only open to "qualified purchasers" with at least $5 million in household worth.

This summer, the U.S. House of Representatives could vote on one of a number of bills that expand the accredited investor definition to include people in certain job categories, professions, or even those who pass an investment-literacy test. The House Financial Services Committee approved two such bills in May.

After hearings, the U.S. Senate might go along in 2026. Senate Banking Chair Tim Scott once sponsored legislation that would let a person invest 10% of their income in alternative investments, if they self-certify they have the expertise.

The big prize for the alt industry is the more than $30 trillion held in individual retirement accounts and 401(k) defined-contribution plans. A 15% allocation of those assets would bring $5 trillion to the likes of Apollo, Blackstone, and KKR, and those assets would earn annual management fees of $40 billion, says the TD Cowen crew.

In May, the Financial Times and Bloomberg reported that Trump's White House advisors were deliberating on an executive order that would tell the SEC and Labor Department to clear the way.

Later this year, the SEC could change a 23-year old rule that restricts a closed-end fund from putting more than 15% of its assets into private equity or hedge funds, unless the closed-end fund is also restricted to accredited investors. At a conference last month, SEC Chair Paul Atkins said he would have his staff review that rule.

In Trump's first term, the Labor Department approved putting private equity in 401(k) plans. That stance was reversed when Joe Biden entered the White House.

TD Cowen thinks it will change again in early 2026, when the Labor Department will issue a rule or legal guidance allowing employers to include private equity and credit options in their 401(k) offerings. The employers, along with the asset managers that advise the plans, would be shielded from lawsuits over private fund fees and illiquidity.

Seemingly confident that they'll win permission, asset managers have been positioning themselves to pursue mainstream money for two years now.

Apollo has joined with State Street on exchange-traded and target-date funds. KKR is teamed with American Funds manager Capital Group. Wellington Management and Vanguard announced a strategic hookup with Blackstone.

Besides partnerships, there have been mergers. Ares Management bought the infrastructure manager GLP Capital Partners. BlackRock bought Global Infrastructure Partners.

They have all mounted an enormous lobbying push and Washington seems agreeable. TD Cowen sees "democratization" of private investing as inevitable.

When the doors to the private-market club swing open, it will then be up to investors whether they want to join. Private credit and infrastructure funds have performed well, so far, but returns have been volatile at real estate and private-equity funds.

An April report by S&P Market Intelligence noted that private-equity funds are having trouble finding exits from their investments in private companies, either by selling those businesses or taking them public. A tide of additional money into private funds could make their returns worse, not better.

Liquidity is another challenge for mass-market investors. A redemption crunch at Blackstone's BREIT is a lesson in point. The fund tries to limit aggregate monthly redemptions to 2% of its assets, and quarterly redemptions to 5% — prorating all requests above those limits. Redemptions exceeded the quarterly limit from 2022 to 2024, as investors worried about real estate loans. Some exiting investors were allowed to withdraw a bit less than they had requested.

But alternative assets deserve consideration because investors need to consider diversification, along with performance, when putting their money to work. Bond yields differ from those of private credit. The index funds that most people own are overinvested, these days, in the Magnificent Seven tech stocks.

Washington seems set to leave the choices to you.

Write to Bill Alpert at william.alpert@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.