Morning,
Real estate sponsors should care about the recent private equity Executive Order (EO) because it signals how capital markets are shifting – and what investors will be seeing next.
On August 7, after lobbying by private equity mega-firms like Blackstone, KKR, Apollo, and Carlyle, the White House signed an Executive Order directing regulators to “expand access to alternative investments” – including private equity, hedge funds, and real estate – within 401(k) retirement plans.
The headlines called it “democratization.”
The reality is closer to risk transfer – from sophisticated institutions that no longer want to hold these assets, to retail savers who don’t understand what they’re buying.
How Private Equity Got Here
For decades, private equity (PE) operated on a clean, predictable cycle:
- Raise capital from pensions, endowments, and sovereign funds.
- Buy underperforming companies, apply leverage, cut costs, and grow earnings.
- Exit by selling to a strategic buyer or taking the company public through an IPO.
At its best, it looked like capitalism’s finest hour: disciplined operators improving businesses and delivering 20%+ annualized returns.
But that heroic story depended on two things that no longer exist – cheap debt and reliable exits.
The Clog: Exits Dried Up
In the past few years, the IPO market has effectively seized up. According to Bain and Apollo, nearly half of private equity’s exits now occur through sales to other private equity firms, not public offerings.
The numbers tell the story:
- In 1999, the median company going public was 5 years old.
- Today, it’s 14 years old – companies are staying private longer, more leveraged, and more exhausted by the time they reach public markets.
With strategic buyers cautious and higher interest rates killing the math on leveraged buyouts, PE firms found themselves stuck holding aging assets they couldn’t sell.
The Workaround: Pass the Parcel
What happened next was a form of financial cannibalism.
PE firms began selling assets to each other – or even to themselves.
Through vehicles called “continuation funds,” managers shifted old portfolio companies from one of their funds into another, often at valuations they themselves set.
This “pass the parcel” game kept fee income flowing and paper valuations high, but little actual cash returned to investors.
In short, these continuation funds and secondaries kept the fee machine moving even as true cash returns lagged.
It’s accounting theater dressed up as liquidity.
The Real Problem: Trapped Capital
By 2020–2021, record sums had been raised at near-zero interest rates. When rates jumped to 5%, those assets, underwritten for a world that no longer existed, looked fragile.
Institutional investors noticed.
- Distributions slowed.
- Valuations looked suspiciously smooth.
- Subscription lines and creative financing blurred where leverage really sat.
The confidence that had fueled two decades of growth began to waver.
Fundraising slowed, and institutional limited partners (LPs) started demanding real distributions before committing new money.
Private equity’s biggest players had a problem: too much trapped capital, too few exits, and growing skepticism from their traditional backers.
The Solution: Tap Retail
Enter “democratization.”
If institutions were reluctant to re-up, the obvious next move was to find new money. And there’s no bigger pool than the $8–10 trillion sitting in U.S. 401(k) plans.
After years of industry lobbying, the August 7 Executive Order opened the regulatory door for retirement plans to include alternatives like private equity, hedge funds, and private real estate.
It’s marketed as “leveling the playing field” by giving ordinary savers access to the same “sophisticated” investments as pensions and endowments.
But the timing tells you everything:
- Exits are clogged.
- Fundraising has slowed.
- And now, retail investors are being invited to help the pros get liquid.
The Business of Banking — 1925 Meets 2025
This isn’t new. A century ago, during the 1920s boom, investment banks recycled securities through syndicates, passing risk downstream to retail investors while keeping the best tranches for themselves.
The system worked until confidence cracked. When prices fell, the structure collapsed, amplifying the Great Depression.
Today’s private equity continuation funds are the modern equivalent of those syndicate pools:
- Illiquid assets get repackaged as opportunity.
- Risk is dressed up in the brand polish of household names.
- And retail investors – now through their 401(k)s – become the exit liquidity for the industry’s oldest and least desirable assets.
The lipstick is the marketing veneer: “private equity,” “institutional-grade,” “alternative access.”
The pig is what’s underneath: levered, aging, overpriced companies that can’t find a real buyer.
The Mechanism of “Democratization”
So how does this actually work?
401(k) plans won’t suddenly start buying stakes in random private equity funds.
Instead, asset managers like Blackstone, Apollo, and KKR will create multi-layered investment vehicles – think funds-of-funds or target-date portfolios – that include private equity slices within otherwise familiar mutual fund or ETF wrappers.
The goal isn’t transparency; it’s scale.
Each intermediary adds another layer of fees and opacity, but the retail-facing presentation looks simple:
“Your retirement plan now includes exposure to institutional-grade private markets.”
In truth, the capital flows up the chain, freeing large PE funds from positions they can’t otherwise unload.
Why This Matters to CRE Sponsors
For commercial real estate professionals raising capital, this isn’t an abstract policy shift. It directly affects how your prospective investors think, compare, and allocate.
Here’s what it means – and what it doesn’t.
What it means:
- Your investors will start seeing “private real estate” funds marketed inside their 401(k) accounts, packaged by mega-firms with institutional polish.
- The bar for professionalism and reporting just rose: investors will expect the same standard of communication and digital access from you.
- The narrative of “private access” will grow louder. You’ll need to counter it with the substance of transparency, clarity, and real relationships.
What it doesn’t mean:
- 401(k) capital will not flow into your deals. These products are designed for billion-dollar structures, not sponsor-level syndications.
- You’re not competing for 401(k) allocations, you’re competing for attention. The “private real estate” story will now be told by firms with marketing machines bigger than most sponsors’ entire organizations.
The Takeaway
Private equity’s pivot toward retail is a symptom of strain, not strength.
The industry’s liquidity engine broke, and 401(k) investors are the new replacement parts.
For private equity firms, it buys time.
For retail savers, it introduces risk they can’t price.
And for real estate sponsors, it’s a signal: the fight for investor mindshare is about to get louder, slicker, and even more confusing than it already is.
The winners won’t be those with the biggest platforms. They’ll be the ones who look institutional but act personal, combining professional polish with transparent, trustworthy communication.
Because while mega-funds may control the headlines, they can’t replace the one thing that still moves real money: relationship-driven trust.
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This is the work we do with multi-cycle sponsors who want to attract more investors and raise more capital by elevating their visibility and authority in a crowded marketplace. Reply to this email and I’ll share a few ways you can stand out - especially now that the latest “democratization” story has changed the landscape.
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If you found today's newsletter thought provoking, please join the conversation on LinkedIn. I posted a shorter, less detailed version this morning.
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Adam