A new era is about to begin in the private equity world.
The Department of Labor issued guidance yesterday that managers of defined contribution plans like 401(k)s and IRAs would not violate federal rules by including private equity as part of their investment offerings accessible to individual workers.
This has been the dream pool of capital for private equity firms for years, representing potentially trillions of dollars. But it’s never been clear if those who administer such accounts would be willing to add risky investments like PE because of certain characteristics of the asset class — the long lock-up and illiquidity of private equity; the inability to regularly value PE assets; and the fear of violating a federal law called Employee Retirement Income Security Act (ERISA).
DOL also offered guidance on how DC fiduciaries should prudently consider incorporating PE into their offerings.
It provided the general comment that defined contribution administrators were clear to add PE into the mix into diversified investment options like target-date funds.
“This information letter will help Americans saving for retirement gain access to alternative investments that often provide strong returns,” U.S. Secretary of Labor Eugene Scalia said in a statement Wednesday. “The letter helps level the playing field for ordinary investors and is another step by the Department to ensure that ordinary people investing for retirement have the opportunities they need for a secure retirement.”
Scalia said the move came after President Donald Trump in May directed agencies to “remove barriers” to American’s ability to prosper in the face of the economic downturn spurred by the virus pandemic.
More than 100 million U.S. citizens make use of DC plans, with assets of more than $7.5 trillion, according to Vanguard. Last year, an average of 8.7 percent of assets of the 200 largest U.S. defined benefit plans were invested in private equity, according to a Pensions & Investments survey last year.
Francisco Partners raised nearly $10 billion across three funds — flagship Fund VI that raised $7.45 billion; Francisco Agility Fund II, which collected $1.5 billion; and the firm’s Credit Partners fund that raised $750 million.
The firm closed the private equity funds in six months with more than 130 institutional investors from more than 20 countries around the world. Read the news brief here on PE Hub.
Amid the pandemic downturn, with fundraising slowed to only but the most in-demand firms, some first-timers are still working to attract capital.
One of the newbies in the market is Twist Capital, formed by ex-Blackstone and Guggenheim executive Sean Madnani, chief executive officer. Twist focuses on debt and debt-like investments in later stage technology companies, according to the firm’s Form ADV. Check out my story here on Buyouts.
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