Private Equity in 401(k) Plans: Is It Risky?
Priya Malani, the CEO of registered investment advisor Stash Wealth, pointed out in an email interview that retirement investors often have decades-long time horizons, which can make the illiquidity of private equity investments less of a problem.
“Assuming your finances are structured properly and you’ve built sufficient liquidity outside your retirement accounts, you shouldn’t need to tap them early, making illiquid investments more palatable. So while illiquidity is often raised as a downside of PE, it’s arguably less of a concern in a 401(k), where long-term time horizons are already built in,” Malani said.
However, Malani doesn’t think private equity is a must-have for a typical 401(k) portfolio. “For most investors, it’s an unnecessary layer of complexity and risk that rarely moves the needle on an already diversified strategy,” she said.
