(Bloomberg) — The largest U.S. private equity firms predict that President-elect Donald Trump's victory could help their ambitions to capture some of the $11 trillion sitting in defined contribution plans like 401(k)s .

Alternative asset management firms are likely to push the Trump administration to welcome private, illiquid investments in the retirement accounts of everyday investors, with a primary focus on target-date funds, according to people with knowledge of the matter.

CEO of Apollo Global Management Inc. Marc Rowan and other proponents of private markets argue that the ability to withdraw money on a daily basis is not necessary in long-term retirement accounts. By giving up some liquidity, or the ease of selling assets, investors can reallocate some of their ultra-liquid investments, such as stocks, to private credit and private equity in exchange for higher returns, proponents argue.

The Trump administration is expected to be much more open to easing regulations than the Biden administration, which would not support placing private equity investments in 401(k) plans.

Private equity offers higher returns and better diversification than the public markets, which are dominated by a few large firms, argue proponents of private equity in the 401(k).

Pension funds have given their retirees exposure to private equity and other alternatives for years, and those in favor of moving private assets into 401(k) funds say it will expand that access to a pool wider savers.

Those who argue that private equity does not belong in 401(k)s claim that those assets charge higher fees and pose more risk than traditional investments. These opponents claim that private equity does not outperform the stock market over the long term after deducting fees, which are typically 2% of assets and 20% of earnings.

Additionally, everyday investors may be stuck in a private markets fund longer than they originally thought. Blackstone Inc., for example, capped redemptions at its market-leading real estate investment trust for wealthy individuals in 2022 as withdrawal requests breached fund limits amid a broader real estate slowdown.

Alternative asset managers such as Blackstone, Apollo and KKR & Co. have raced to launch products for individual investors as traditional sources of capital, including pension funds and funds, remain insufficient in cash to allocate to alternative investments.

In recent years, these firms have built investment funds for high-net-worth individuals who meet certain income standards, as a test case for selling products in the private markets to non-institutional investors. All major players now offer a range of products across private equity, credit, real estate and other alternative assets.

“We are one administration away from the illiquidity that is involved in the 401(k),” Rowan said at an industry conference in May.

'The Next Frontier'

Right now, the 401(k) system is designed for mutual funds that provide daily liquidity and are invested in the stock market. Capturing even a piece of this market opens up a powerful source of new capital for alternative firms. And an aging population means the cash pile will grow.

Asset managers such as Apollo and KKR have bought life insurance firms with a focus on annuity sales as a way to raise money and bet on an aging population.

“The next frontier for the private equity industry is $10 trillion to $11 trillion in retirement assets,” Dan Daneshrad, a partner in King & Spalding's investment funds practice, said in an interview.

Previous lobbying efforts at the Securities and Exchange Commission have focused on easing marketing standards to sell products to wealthy people, which is likely to continue alongside efforts to seize retirement assets.

“The new administration may be open to making less liquid private assets more accessible to long-term retirement savers who don't necessarily need day-to-day liquidity,” said David Blass, a partner at Simpson Thacher & Bartlett focused on investment fund regulation. .

While there is nothing clear in the Employee Retirement Income Security Act of 1974 that governs 401(k)s that prohibits any particular asset class, the industry is likely to seek more guidance from the Labor Department on private equity and other illiquid alternatives that are allowed. in pension funds, said Alexander Ryan, a partner at Willkie Farr & Gallagher focused on executive compensation and employee benefits.

During the first Trump administration in 2020, the Department of Labor published a letter concluding that private equity investments may have a place in the 401(k) as part of a broader investment fund, such as a target-date fund.

In 2021, the DOL under the administration of President Joe Biden published a supplementary letter clarifying that it did not approve or recommend private equity investments in 401(k) plans, a move that was widely seen as slowing momentum for adding private equity to retirement accounts.

“My guess is that 401(k) plan sponsor fiduciaries will be reluctant to offer private equity as a stand-alone option to their plan participants unless or until they get something more definitive from the Department of Labor, or until there's an amendment to ERISA itself, or the current regulation that clarifies that private equity as a stand-alone option is allowed,” Ryan said.

The industry will be watching closely to see who Trump appoints as Labor secretary and SEC chairman for clues on how easy it will be to achieve their goals. Lobbying efforts are not likely to begin in earnest until those appointments are made.