Key Takeaways
- • Private equity evergreen funds significantly underperformed public stock market indexes in 2025, with median returns trailing broad equity benchmarks even before accounting for sales charges, according to analysis from the Private Equity Stakeholder Project (PESP).
- • Over a three-year period, private equity funds marketed to retail investors delivered approximately half the returns of public equities, including the S&P 500, raising material concerns about suitability for 401(k) retirement plans.
- • Annual expense ratios for large private equity evergreen funds range from 4 to 5 percent—roughly 130 to 160 times higher than the 0.03 percent charged by basic S&P 500 index funds—creating significant drag on long-term retirement savings accumulation.
- • The Trump Department of Labor is finalizing rule changes that would expand 401(k) plan access to private equity and other alternative assets, following an August 2025 executive order aimed at democratizing access to alternative investments.
- • The regulatory expansion occurs amid substantive performance and fee concerns from industry analysts, creating a critical juncture for plan fiduciaries evaluating private equity inclusion in defined-contribution retirement offerings.
Summary
The Trump administration's Department of Labor is moving toward finalizing regulatory changes that would make private equity investments more accessible within 401(k) retirement plans. This policy initiative, grounded in an August 2025 executive order titled "Democratizing Access to Alternative Assets for 401(k) Investors," aims to expand plan sponsor options to include private equity alongside other alternative assets. However, new performance analysis from the Private Equity Stakeholder Project (PESP) presents a counterpoint to the regulatory expansion, documenting significant underperformance and fee structures that could erode retirement savings materially over time.
The PESP analysis focuses on private equity "evergreen" funds—perpetual investment vehicles often cited by industry advocates as viable models for 401(k) inclusion. The findings reveal a consistent performance deficit relative to public equities. In 2025 alone, median returns from these private equity evergreen funds trailed broad public stock market indexes before accounting for sales charges. More critically, over a three-year horizon, these funds delivered approximately half the returns of public equities, including the S&P 500. This underperformance gap raises questions about risk-adjusted value delivery to unsophisticated retail investors who would access these vehicles through workplace retirement plans.
Fee structures constitute a second material concern. The largest private equity evergreen funds charge annual expense ratios ranging from 4 to 5 percent, compared with approximately 0.03 percent for a basic S&P 500 index fund. This 130- to 160-fold fee differential compounds substantially over typical retirement accumulation periods and significantly reduces net returns available to savers. Jim Baker, executive director at PESP, stated: "Private equity firms are pitching these products as opportunities for everyday workers, but the data suggests that some of these funds have lagged the stock market while charging fees that can significantly erode retirement savings over time."
For plan fiduciaries and institutional investors, the regulatory development creates heightened due diligence obligations. While the DOL's expansion reflects policy intent to broaden investment optionality, the performance and fee data underscore the necessity of rigorous vetting before private equity inclusion in defined-contribution plans. Advisors and plan sponsors must evaluate whether proposed private equity offerings meet fiduciary standards for prudence and whether fee structures align with the interests of retirement savers, particularly those with limited investment sophistication.
The PESP analysis focuses on private equity "evergreen" funds—perpetual investment vehicles often cited by industry advocates as viable models for 401(k) inclusion. The findings reveal a consistent performance deficit relative to public equities. In 2025 alone, median returns from these private equity evergreen funds trailed broad public stock market indexes before accounting for sales charges. More critically, over a three-year horizon, these funds delivered approximately half the returns of public equities, including the S&P 500. This underperformance gap raises questions about risk-adjusted value delivery to unsophisticated retail investors who would access these vehicles through workplace retirement plans.
Fee structures constitute a second material concern. The largest private equity evergreen funds charge annual expense ratios ranging from 4 to 5 percent, compared with approximately 0.03 percent for a basic S&P 500 index fund. This 130- to 160-fold fee differential compounds substantially over typical retirement accumulation periods and significantly reduces net returns available to savers. Jim Baker, executive director at PESP, stated: "Private equity firms are pitching these products as opportunities for everyday workers, but the data suggests that some of these funds have lagged the stock market while charging fees that can significantly erode retirement savings over time."
For plan fiduciaries and institutional investors, the regulatory development creates heightened due diligence obligations. While the DOL's expansion reflects policy intent to broaden investment optionality, the performance and fee data underscore the necessity of rigorous vetting before private equity inclusion in defined-contribution plans. Advisors and plan sponsors must evaluate whether proposed private equity offerings meet fiduciary standards for prudence and whether fee structures align with the interests of retirement savers, particularly those with limited investment sophistication.
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