KBRA Releases Research – Private Credit: Making the Best of 401(k) Democratization

By: Kroll Bond Rating Agency, LLC via Business Wire

August 29, 2025 at 10:12 AM EDT

KBRA releases research examining President Donald Trump's executive order to potentially ease regulatory barriers that have limited defined contribution (DC) retirement plans’ access to alternative investments—a move that could allow millions of retirement savers to invest in an expansive list of such assets. The order aims to have a democratizing effect, as access to alternatives is already a common and growing feature in the retirement accounts of defined benefit (DB) plan savers (typically government employees and legacy corporate pension beneficiaries). This democratization seems profoundly fair, given that alternative investments have historically outperformed comparable public market options, on average. However, as always, not everyone will experience “average” outperformance, and alternative investments also carry higher fees and relative illiquidity, which may dampen rather than brighten some investors’ retirement dreams.

In this report, we consider the experiences that institutional investors have had with alternatives, which may inform policy discussions and help retail investors avoid the pitfalls of such investments.

Key Takeaways

The democratization of alternative investments seems profoundly fair, especially given the context that the average retirement investor with access to a DB pension plan has nearly one-quarter or more of their portfolio in alternative assets. Since 2005, that allocation has increased significantly. At the same time, the otherwise identical worker who relies on a DC plan, most commonly in the form of a 401(k), has limited to no access to alternative assets.
Diversified exposure to private assets can be a net positive for savers with multi-decade investment horizons. But as we have learned from institutional investors’ experiences with alternatives, simply adding alternatives to a portfolio does not necessarily equate to higher overall returns relative to public markets. It also comes with higher fees, less liquidity, and the ever-present potential of choosing the wrong manager at the wrong time. As highlighted in previous KBRA research, good outcomes are highly dependent on manager selection. For example, investing with a bottom-quartile private equity fund can leave you much worse off than remaining a passive investor in public markets.
Employers, and the institutional managers of their 401(k) plans, solved an important problem faced by employees investing in public markets decades ago—shifting them from high-fee, lower-performing “stock pickers” toward lower-fee, broadly diversified options such as exchange-traded funds (ETF) and benchmark-driven mutual funds. In the alternatives space, we believe a potential ETF equivalent already exists in the form of secondary funds and fund of funds.
We also envision market benchmarks that can evolve into tradeable investment vehicles. The recent acquisitions of Preqin Ltd. and The Burgiss Group, LLC—two specialists in private fund and asset-level benchmarking data—by BlackRock, Inc. and MSCI Inc. (two firms recognized for their benchmarking products and services) is no coincidence with these general trends. In our view, given the inherent limitations with regard to who will get to access the largest and best-performing private investment funds, the managers of broadly diversified pools of fund exposures and or benchmarking instruments could eventually become both the catalyst for and the beneficiaries of private market democratization.
Meanwhile, KBRA notes an accelerating movement toward perpetual private asset fund strategies among its portfolio of rated vehicles and transactions. These strategies could also be a growing magnet for retail capital.

Click here to view the report.

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About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

Doc ID: 1010984

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John Sage, Senior Director

+1 646-731-1452

john.sage@kbra.com

William Cox, SMD, Global Head of Corporate, Financial and Government Ratings

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william.cox@kbra.com

Benjamin Weir, Associate

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benjamin.weir@kbra.com

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michael.caro@kbra.com

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KBRA Releases Research – Private Credit: Making the Best of 401(k) Democratization

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