Private Equity Sets Its Sites On A New Funding Victim: Mom-And-Pop 401(k)s

Tyler Durden's picture

After laying ruin to the defined-benefit pension plans of public and private employees over the past several decades, Wall Street has its sites set on its next victim: mom-and-pop 401(k)s.  Sure, because as our recent headlines confirm, wall street money managers have worked wonders for public/private pension funds:

Alas, with companies increasingly opting for defined-contribution retirement plans (401k's) in-lieu of defined benefit plans, combined with the trillions of dollars of losses that wall street has racked up for the nation's largest pensions, it's no wonder that 'millionaire, billionaire, private jet owners', like Stephen Schwarzman of Blackstone, are looking to get their 'fair share' of fees from America's $4.8 trillion in 401(k) assets.

As Schwarzman told Bloomberg, "you have to have a dream," and his dream is to apparently lay waste to a whole new pocket of American retirement wealth.

Today most mom-and-pop investors still don’t have that option. But a shift in how people are saving in their 401(k)s may give private equity a new way in -- keeping firms like Carlyle, Blackstone Group LP and KKR & Co. eyeing the $4.8 trillion that U.S. workers have saved in their 401(k)s.

 

“In life you have to have a dream,” Steve Schwarzman, Blackstone’s chief executive officer, said on a call with analysts in January. “And one of the dreams is our desire -- and the market’s need -- to have more access” between alternative-investment funds and ordinary savers. It was a bold and telling statement coming from the helm of the world’s largest private equity firm.

 

Offering private equity to individuals has been a challenge because the investments are often hard to convert to cash quickly and they charge fees higher than those of traditional mutual funds that populate 401(k)s. Such retirement plans value assets on a daily basis, presenting a challenge for private equity firms that hold dozens of years-long investments. While private equity’s pitch is that it offers greater returns than traditional mutual funds, it may be hard to ensure each plan participant gets the best of what the asset class has to offer.

PE

 

Inflows into private-sector 401(k)s have outpaced those into corporate pensions every year since 1987, according to 2014 figures, the latest available from Department of Labor data tabulated by the Investment Company Institute. Americans and their employers put $349 billion into 401(k)s in 2014, more than 3.5 times the volume that flowed into pensions, the data show.

And while private equity has largely been shunned by smaller investors due to illiquidity and high fees, a lesson that many so-called 'sophisticated' institutional investors could afford to learn, we have no doubt that they will ultimately find a way to plunder such a highly-coveted asset.

Some firms including New York-based KKR are hoping to score retirement money through an effort started by Pantheon Ventures, a London-based private equity firm that’s trying to get companies with 401(k)s more comfortable with the asset class. Companies are afraid of adding private equity because they can be sued by employees for offering complex products that charge higher fees.

 

To address the fear, Pantheon offers performance-based pricing on its fund-of-funds strategy: The firm earns a fee when performance exceeds the S&P 500 and returns money if it lags. Pantheon will mix private equity investments managed by KKR and other firms with cash and shares of an S&P 500 exchange-traded fund to offset liquidity concerns. It’s also developed a model to help value assets on a daily basis.

 

“Fundraising is all about knocking down barriers,” said Kevin Albert, Pantheon’s global head of business development. “They say they don’t want to invest with you because of one reason, so you fix it and keep reiterating.”

"Dream big," Steve Schwarzman...how else are you going to be able to afford that new Lambo for the Hamptons house?

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wombats's picture

They won't quit until they've bled every last serf dry.

Bastiat's picture

They just want to help.

knukles's picture

Robbing Widows and Orphans.
Reminiscent of the Great Depression.
The first one, not this one.

wombats's picture

<--It's the Merikan way.  Liberate those captured funds.

<--The widows and orphand didn't want it anyhow.

pugilist's picture

"sites"?
ZH copyeditors busy getting baked today

Chief Wonder Bread's picture

they don't even notice

or is that knowtis?

to be fair, it happens on many days other than 420

and many "sights" other than ZH.

DavidC's picture

knukles,
This isn't The Great Depression, it's The Greatest Depression.

DavidC

booboo's picture

Just doing gods work, but which god?

2 Corinthians 4:4 "Satan, who is the god of this world, has blinded the minds of those who don't believe. They are unable to see the glorious light of the Good News."

AGuy's picture

"DEBT PROCESSING PLANT"

Which probably be converted intoa a soylent green plant after they run out of credit/OPM (Other People's Money)

Skeero's picture

This isn't a lie lol. Maybe not honest in what their helping you do..

But in all honesty 401k's need more options in how you invest. My girlfriend has hers through Fidelity, and I hate the funds they have. When you look at the stocks some of the fund managers chose I wonder why they have a job. Granted during this bull market the dartboard method has worked just fine.

bestiae fame's picture

Doing God's work, right? 

peippe's picture

not true-

they just want 15% pre-tax, is all.

15% of what you saved & scrimped for for 15-38 years,

Why won't you share? : )

wombats's picture

"You didn't make that"

BennyBoy's picture

 

When you're a crony your failures get rewarded.

Time to fuck over mom and pop.

reTARD's picture

The Joos just want to liberate the goyim of their money. It's "their" money after all.

Arnold's picture

Wow, who wrote this.
Something new and different.
I like it, you stupid asshole.
Regards,.ald

RagaMuffin's picture

And no reference to the word fiduciary, fancy that   \s

bowie28's picture

So now you dont even need to deal in shares of publicly traded companies to loot everyone's 401k.  You can do it with a startup and convince the dupes they are getting in on the next Google on the ground floor!!! Even provide projected post-IPO values showing how they can expect 10000% ROI in 2 years.

Think of all the new opportunities this will open.  The possibilities are endless!

 

Lady Jessica's picture

There once was time when "not feeling sufficiently comfortable" with an exotic asset class might have been regarded as healthy caution.

Bastiat's picture

Soon it will be classified as evidence of mental incompetence resulting in a court appointed trustee to "look after" those assets.

nufio's picture

this will never suceed. the govt already has eyes on the 401ks to force buy USTs after china stops buying them.we cant have runaway inflation in the usa, so it has to be in accounts that cant be spent (ie 401k). Its going to start by laws that force all 401ks to hold a % in USTs. this will probably be introduced after the next stock market crash because it will be to protect the retirees. 

Rainman's picture

The vultures are coming in too late for this particular pump and dump scheme ....even granny knows the con by now.

peippe's picture

they only need 2/3rds of 1% to make it worth their time. 

ultraticum's picture

Put your IRA into an LLC via 3rd party custodian (they technically "own" it, but you control it as LL manager).  Now you have checkbook control, meaning nearly any asset qualifies (except for self-dealing - i.e. using it to buy your residence, etc.).  Totally legal.

Still deferred, but one step removed from the clutches of this vicious cartel.

RagaMuffin's picture

What's the tax, expense exposure of the LLC or is the LLC itself the IRA?

bonin006's picture

Technically, the LLC is owned by the IRA, and the profits in the LLC pass tax free to the owners, the IRA in this case, which is not taxed (ever if a Roth, or until assets are withdrawn, for a traditional IRA). I have looked into this quite a bit, but have not set one up yet as what I wanted to do most with it was put some or all of my own existing business into it, but that is not possible due to prohibitions against "self dealing". If you are buying real estate - such as apartments or houses to rent or resell there is no problem as long as you follow the rules. You could get in trouble (have the IRS declare the IRA assets distributed to you and get charged taxes and penalties on the entire value) if you do repairs and such yourself.

you could buy any business you are not personally involved in, but if it is an "operating" business, that is it makes a profit by manufacturing and selling something, there is a tax of about 30% on the profit.

There is a lot of information on the internet, and some good books. Have a look at "The Checkbook IRA, Why You Want it, Why you Need it", by Adam Bergman if you are serious about this. There are some some very good things that can be done with structure of IRA, such as buying things at foreclosure actions that are not practical in other plans where you need to get approval from a plan administrator. With the checkbook IRA you control it yourself and write the check yourself (using the LLC checks - if you use personal funds the IRS will see that you have a very bad day)

Pinche Caballero's picture

Do your own research, it may not be for everyone. The LLC is owned by the IRA, The returns to the LLC belong to the IRA.The IRA must have a a custodian, like any other. Again, the checkbook control belongs to the owner of the IRA.

It can be real easy to run afoul of the IRS with income generating assets, I.e., rental or commercial property and so forth. With purchases of Au/Ag in the form of specifically Eagles of which you take possession, and that are long term stores of value, not so much. No collectibles allowed.

Search "self-directed IRAs" For pros/cons.

Arnold's picture

there are problems with your LLC theory.
But, that's what CPA s are for.
They insist on using GAAP.
It is hard enough to keep up on.

Non GAAP is for criminal intent.

buzzsaw99's picture

I just want to ask you one thing, cowboy. If you're sitting here, and he's sitting all the way over there, then how's he gonna get his hand into your pocket? Oh, but I guess he has that all figured out... [/Jackie, Midnight Cowboy ]

DrData02's picture

These people need to be eliminated.

Bam_Man's picture

In the old days, there would already have been a pogrom - long ago.

aloha_snakbar's picture

I have a dream... that the next person who goes crazy with a gun blows off this fuckers head...

peippe's picture

he looks....ashy?

poor circulation, dead inside five years, so, be happy.

aloha_snakbar's picture

Would not make me happy or unhappy, I could not care less. Just get tired of the Wall Street types sucking the lifeblood from people who actually work for their money...

fannyplucker's picture

Looks like a new revenue stream for reverse mortgage guys

alfredhorg's picture

"private equity’s pitch is that it offers greater returns than traditional mutual funds, . . ."

 

So do I!

https://howibeatgold.wordpress.com/2017/01/25/trash-dump-worker-invests-...

 

And one janitor!

https://howibeatgold.wordpress.com/2017/03/27/janitor-amassed-an-8m-fort...

CoastalCowboy's picture

Kikes will be kikes.

Tzanchan's picture

Bugger off beyotch. You got a home, car, businesses, family, n' I own the paper on ya whole fuckin' life. I'll put ya cunt wife on the street to be fucked in the ass by niggers and Puerto Ricans. Ya kids mine because I bought 'it. You got 'im on loan, he is leased, you are renting him. I'll whack out ya whole family. People'll be eatin' 'em in their lunch tomorrow in their Wimpyburgers and not know it. You get paid what I say. You do what I say, I run you, there is no discussion. I want, you work, until you are burned-out, you are busted, or you're dead... you get it? You got responsibilities - tighten up n' do it. Clean this mess up, get 'im outta here. Back to work, Frank.-Classic line by Leo probably another member of the Tribe in Thief.

Master Electrician's picture

All smoke, mirrors, and rearranging deck chairs. The money is already gone. One day very soon it will become quite apparent, and people will be trading two airline bottles of vodka for a snickers bar.

Is-Be's picture

I'm too thick to understand any of what was written. 

But I did understand "Suit" and " pile of cash".

NuYawkFrankie's picture

Serial-Scumbag Schwarzman....

tiring of the time-consuming task of asset-stripping actual businesses - now looking to go straight to the source of where the moolah is... and directly asset-strip 401ks

DaBard51's picture

"Sights", not "sites", headline, should be.

Homonym sought for improper usage.

 

 

When nine hundred years old you become, look this good you will not.

Tzanchan's picture

People should stop being sheeple and look into Self Directed IRA's. I think I could invest in lottery tickets if I wanted to, but Bolita has much better odds. The fraudsters who run our pathetic mutual fund racket take 1.24% of the total value every year so after 20 years they have 1/4 of of it market up or market down. I invest in land in North Carolina in Murphy where the Cherokees just built a $180 million casino resort. I have precious metals, real estate, hard money lending etc. Open yer eyes people.

New_Meat's picture

Hey Tyierz, when Private Equity Sets Their Sites, did they set them at East Cupcake?  Me?  I'd prefer Setting the Site at Columbia or Princeton or Havhad, don't y'know?

ds's picture

The litmus test with all these shenigans. Look for their skins in the games. They can pitch again if I hold the real assets in a decline and they the papers. BUT more Muppets are born each day than they fade away, That's why these contraptions will fly. They will be boosted when all are in with derivatives.