Private markets for everyday investors?

Leaders of the nation’s biggest financial institutions are suggesting changes they believe would improve the ability for Americans to save for a secure retirement.

Banks like JPMorgan Chase and investment firms like BlackRock say more people should be able to invest in private equities and credit in infrastructure, real estate, companies, and other enterprises. Those investments are normally unavailable to the average investor.

BlackRock CEO, Larry Fink, in his recent annual letter to investors titled “The democratization of investing,” wrote about the retirement crisis, Americans’ angst about financial security, and some ways to address those issues. He’s suggesting a mix that goes beyond the traditional small investor’s blend of stocks and bonds.

Big institutional investors and wealthy individuals can play in private markets and so can pensions. But the rest of us — people whose retirement savings are in 401(k)s and similar investments — are mostly shut out of those investment portfolios. The everyday investor can invest in publicly traded stocks and bonds, but most businesses in the U.S. — 83%, according to BlackRock — are privately owned and not available for general public investment.

“Assets that will define the future—data centers, ports, power grids, the world’s fastest- growing private companies—aren’t available to most investors,” Fink wrote. “They’re in private markets, locked behind high walls, with gates that open only for the wealthiest or largest market participants.”

But that’s changing. Private market investments — big infrastructure improvements, for example — can be packaged into funds that can then be traded by average investors and  people saving in 401(k)s. Those indexed private market investments work like the exchange-traded funds (ETFs) that index the S&P 500, large-cap stocks, Nasdaq-100, and other diversified assortments of stocks.

Instead of a classic portfolio of 60 percent stocks and 40 percent bonds, Fink suggests a future portfolio for small investors will include 50 percent stocks, 30 percent bonds, and 20 percent private assets and credit. “Private assets like real estate and infrastructure can lift returns and protect investors during market downturns. Pension funds have invested in these assets for decades, but 401(k)s haven’t. It’s one reason why pensions typically outperform 401(k)s by about 0.5% each year,” Fink wrote.

Those ideas come in the wake of a national Retirement Summit that examined the obstacles facing Americans hoping for financial security during retirement, and national polling that illustrates the depth of workers’ frustration and the reasons behind it.

Tim Hill, president of APSR, reflected in Newsmax Finance the takeaways from the Retirement Summit which brought business leaders, union leaders, and thought leaders to D.C. to work and address this crisis and build support for solutions. His belief is that we “should not let politics get in the way of secure retirements and sound investments” and to do so we must acknowledge gaps and join forces. He concluded, “We know there’s a retirement crisis. We know it’s a big, difficult problem to solve. But I’m confident we can fix this if we all come together.”

Similarly, Fink’s annual letter suggests the solution to further democratize investing is by “helping current investors access parts of the market they’ve previously been restricted from, and enabling more people to become investors in the first place.”

For future and current retirees to ensure a secure and prosperous retirement, we must come together and work to provide access to all investment solutions to all types of investors.