August 7, 2025 • 39 mins
Description:
Tune in to the Private Equity Experience Podcast as we dive into the increasingly controversial topic of private equity making its way into 401(k) retirement accounts. This episode explores the latest developments, including Senator Warren's strong concerns and the potential risks associated with adding illiquid and volatile assets to employee retirement savings.
Key Takeaways:
Senator Warren's Stance: We discuss Senator Warren's critical letter to Empower, highlighting concerns about transparency, high fees, and liquidity risks associated with private equity offerings in managed 401(k) accounts.
The Allure & Risks of Private Equity: Experts Ed Barton and Rory Liehert break down the potential benefits for sponsors seeking to diversify, but also emphasize the significant downsides of private equity – including long lock-up periods, market volatility, and the lack of readily available liquidity.
Dilution in Retirement Savings: We examine how the introduction of private equity could impact the overall diversification and potentially the returns of 401(k) portfolios, especially for average investors.
The Evolution of Private Equity in Retirement: This episode traces the roots of this trend back to Donald Trump's early advocacy and analyzes the current push by organizations like Empower.
Risk Assessment: Private Equity vs. AI Portfolio Management: A lively debate ensues on whether allocating private equity to 401(k)s poses a greater risk than relying on AI-driven portfolio management.
Is This the Right Asset Class? We delve into the fundamental question of whether private equity aligns with the goals and risk tolerance of the average 401(k) participant.
#privateequity #401k #retirementplanning #investments #funding #dilution #fees #liquidity #risks #illiquidassets #senatorwarren #empower #privateequityin401k #financialplanning #assetallocation #marketvolatility
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
emily-sander_1_07-15-20 (00:34):
Senator Warren pushes back on private
equity and 4 0 1 Ks.
Here's what's happening.
Empower retirement, A major 401krecord keeper serving about
90,000 employers, has proposedoffering private equity, private
credit, and private real estateas options within participant
accounts, but only for those inmanaged accounts with
professional oversight.
(00:54):
Senator Warren, ranking memberof the Senate Banking Committee
fired off appointed letter toEmpower CEO raising concerns
about one, lack of transparencyin private funds, two high and
opaque fee structures, and threeliquidity risks If investors
wanna exit when the marketsturn.
Ed and Rory, what are your hottakes?
ed--hizzz-_1_07-15-2025_1604 (01:14):
I, uh, I will give you my, my
commentary I made before westarted the pod, which was.
This is probably the first timein my professional career.
I agree with Elizabeth Warren onanything
rory-liebhart_1_07-15-202 (01:26):
Yeah.
Mm-hmm.
ed--hizzz-_1_07-15-2025_1604 (01:29):
I, I am, I am.
Absolutely.
After everything we've discussedaround private equity, I think
the thought process of going toa pure or a true private equity
type asset, where it has longhold periods.
Illiquidity volatility inpricing.
(01:52):
The, the market is inefficient.
The, you know, that's just not,that's just not where I think
the average Joe, regardless ofhow professional their
portfolio's managed, um, shouldbe having their retirement funds
at least at, you know, I thinkthere's, there's gotta be a lot
of controls around it, and Ithink her admonition to go back
(02:13):
and try again is a, is a goodone.
rory-liebhart_1_07-15-202 (02:17):
Yeah,
emily-sander_1_07-15-2025 (02:17):
Rory.
rory-liebhart_1_07-15-2025_1 (02:17):
I, I, I generally agree with that.
Um, you know, it's, this standsto reason that this is what
we're talking about here is a$38trillion pocket of, of assets
that are being managed.
So, of course.
You know, um, for somestakeholders involved, you know,
having access to that, to putyour offerings out there is
(02:39):
enticing, you know, for so manyreasons.
where I, where I generally agreewith Ed is I don't think that
this is necessarily the.
Right kind of asset class for a401k.
Um, you know, kind of where, asyou said, you know, average
Joe's, that's where theyaccumulate their retirement.
So, you know, the potential forswings in that has a lot of
(03:00):
implications.
And, and that's not to say thatthere aren't other ways that.
Private investors can getinvolved with private equity.
This is a whole nother ballgame.
I mean,
ed--hizzz-_1_07-15-2025_1604 (03:09):
Oh yeah.
rory-liebhart_1_07-15-2025 (03:09):
take it away from 401k.
There's self-directed IRAs.
I've invested in private equityout of my own self-directed
IRAs, so it's not like this isthe only game in town to invest
in, in, uh, private equity.
But, um.
I think that this is justnaturally one of those elements
that comes up, you know, with,the current administration.
I think this, this whole topicwas really actually introduced
(03:31):
by Donald Trump back in 2020.
I learned.
Um, and so it's kind of reppercolated again.
Uh, and so now it's getting somefresh debate around all things
Ed talked about, which is, youknow, um, access to information,
long, long hold periods, fees,all this stuff that.
You know, I think, um, is worth,worth a debate.
(03:54):
So where it's at right now is,there's a debate going on
between led by Elizabeth Warren,but you know, with, with others
involved.
And I think that's what needs tohappen.
I think, um, you know, it's notjust a easy answer.
You know, kind of reminds me ofpeople wanting to do away with
like social security.
Hey, I can manage my owninvestments just fine.
I'm a, you know.
(04:16):
You know, individual that canmake strong choices.
Yeah.
Well, I mean, markets alsomatter too.
So, um, anyway, lots to talkabout, lots to unpack, but
that's my
emily-sander_1_07-15-2025 (04:24):
Yeah, I mean this was, this was from a
article that you brought to thetable, Rory.
So this is, this is literally inthe news and I was trying to
think of.
An analogy and it, it was, it'skind of like an amusement park
where you have like publicmarkets, like, I don't know,
stocks and bonds or like yourvanilla rides or like the
standard rides like the Ferriswheel and the bumper cars or
(04:46):
whatever.
They're predictable.
You can get on and get off andthen imagine there's like this
gated part of the amusement parkthat's now been opened and it's
like private equity land and youcan go on high speed
rollercoasters and you can havebig thrills and big risks, but.
It's been closed off unlessyou've been institutional money
(05:06):
or like very high net worthindividuals.
And now Empower wants to openthose gates, but have like the
safety checks been done and areall the height requirements to
point and all those things.
So like Elizabeth Warren issaying like, are you sure that
you, this is ready for primetime?
Can regular folks really handlethis?
Average Joes really handle this.
(05:26):
So,
rory-liebhart_1_07-15-202 (05:27):
Yeah,
emily-sander_1_07-15-2025_1 (05:28):
um.
rory-liebhart_1_07-15-2025 (05:28):
not, I would say actually, uh, most
likely not.
Um, yeah, for, for all, allthose.
Thing.
Things you might just generallythink about is, you know, you
can make a case for givingaverage Joe a shot at
diversification Alternativeasset classes.
As we talk about in our book,and we've talked on this
(05:49):
podcast, it's, it's a legitimateasset class, but it comes with
its own characteristics.
So a lot of times you like tohear in.
The proponents for these thingsare saying, you know, well,
higher, higher return potentialthan your, you know, 7% con
compounded average s and p 500returns, or whatever that is
over time.
Yeah, here's an opportunity tomake, you know, 15, 20%, but
then start digging under thehood of what that means is, you
(06:15):
know, that comes with more riskand is the goal of a 401k plan
to be administered to provide.
You know, plan participants withhighest possible return or give
'em the best shot at, you know,having a nest egg for
retirement.
I think that's probably where,know, uh, the, the overall
critics of something like thiswould come from.
ed--hizzz-_1_07-15-2025_1 (06:37):
Well, and I, and I would go, uh, I'd
go a step further.
I think it's a, there's an, andboth here.
so when you look at, um,alternative asset classes in
general, all the concerns aroundilliquidity and lack of
diversification and, you know,the, the cost to administer and
(06:58):
all those elements.
And so a direct investment froma 401k into, know, a, a, a.
Direct fund is probably not theway to go.
Now, what I would say is, youknow, I, I would say the same
thing about someone going, well,we're gonna put, you know,
apartment complexes in our 401k,or we're gonna put,
rory-liebhart_1_07-15-202 (07:17):
Yeah.
ed--hizzz-_1_07-15-2025_160 (07:17):
but what I would say is, you can get
there, but the, it's, it's likeusing the ETF version
rory-liebhart_1_07-15-202 (07:23):
Yeah.
ed--hizzz-_1_07-15-2025_160 (07:24):
you can use
emily-sander_1_07-15-2025_16 (07:25):
Oh
ed--hizzz-_1_07-15-2025_1604 (07:25):
to make your,
emily-sander_1_07-15-2025 (07:26):
yeah.
ed--hizzz-_1_07-15-2025_1604 (07:26):
to make your investments into real
estate.
If you wanna have real estate inyour 401k.
So there's normally a, a gooddiversified 401k will have a
REIT option.
And you know what I would say isa, is a potential, and I even
say self-directed IRAs andthings like that.
There's a, there's a risk levelthere for illiquidity that's
structured you want exposure to,to private equity.
(07:50):
And you don't want to have thedownside of illiquidity.
There's, you can.
Buy stock in KKR.
You could buy stock inBlackRock.
rory-liebhart_1_07-15-20 (08:00):
That's
ed--hizzz-_1_07-15-2025_1604 (08:00):
So you can invest in the, in the GP
essentially, and get the sameride.
And I, so in prep for this, Ipulled up those 2K KR, and
Blackstone.
So five year return onBlackstone stock Liquid could
buy it today, sell it tomorrow,do all the things you, you wanna
do.
Five year return on Blackstone,185.5%.
(08:23):
Five-year return on KKR 292.25%five-year return on the s and p
593.38%.
So you could get those outsizedreturns, you could get that
diversification, you can dothose kind of investments
without the, the downside.
Now you're not gonna get, maybeif you had gone direct, you
might get another 500 basispoints, but.
rory-liebhart_1_07-15-202 (08:45):
Yeah.
ed--hizzz-_1_07-15-2025_160 (08:47):
For the typical investor, and I
would put myself in thatcategory'cause I don't have, you
know, seven figures, eightfigures to go dump into this and
not think about the liquidity ofthat.
rory-liebhart_1_07-15-20 (08:56):
Right.
ed--hizzz-_1_07-15-2025_1604 (08:58):
if I was, if I was, if I wanted to
make a direct investment, if Iwanna make an investment in
private equity, that's thedirection I'm gonna go.
And I get the kind of the bestof both worlds.
I get the liquidity of apublicly traded vehicle with.
The, the return characteristicsof private equity, just, you
know, potentially, you know,there's gonna be more over at
(09:20):
associated with both trading andmanagement with those, it's
almost like A-P-E-E-T-F
rory-liebhart_1_07-15-2 (09:25):
Mm-hmm.
ed--hizzz-_1_07-15-2025_160 (09:26):
and you can, you can kind of pull
that and it's gonna pull some ofthat return out, but you're
gonna get the, the trade offsgonna be the liquidity and other
things that I think are almostimpossible to, to get if you're
a direct investment in a privateequity.
rory-liebhart_1_07-15-2025_16 (09:40):
I mean there's, there's plenty of
ways to access privateinvestments.
So in this case, you, you justask yourself, you know.
What, what, what privateinvestments would you, would you
put in a 401k plan?
Basically like anything that'snot a public company is a
private investment, so thatcould be literally anything.
Uh, so, you know, I think peoplethat are, you know, against
(10:03):
something like this, they kindof lean on the fact that the SEC
is kind of the governing bodyover public companies, which it
is.
you know, what, what, uh,measures can you put in place to
make sure that the privateinvestments that you're offering
to Joe Average, you know, is,know, a legitimate offering, you
know?
(10:23):
Um, there's so much, much, it'sso vast, you know, so the, the,
the, the.
Landscape.
So how do you qualify what's,what's available?
And you know, typically that'llend up go, I would think if it
does go that way, I've, youknow, kind of read about this,
you know, Blackstone is kind ofthe one that's sort of put it
out there, Hey, we wanna offerour funds to, you know, uh, 401k
(10:44):
investors.
And so that's how I think a lotof this got pushed up to the
current is like Blackstone, youknow, looking for probably, uh,
distribution network foraccessing$38 trillion of,
ed--hizzz-_1_07-15-2025_160 (10:57):
How do I, how do I get more, how do
I get more limited partners
rory-liebhart_1_07-15- (11:00):
exactly.
ed--hizzz-_1_07-15-2025_16043 (11:01):
I can get a larger pool so I can
get a bigger
rory-liebhart_1_07-15-202 (11:03):
where the big guys are gonna drive it,
probably, you know, anythingthat goes
emily-sander_1_07-15-2025_1 (11:06):
So, so that's, that's how it's f
favorable to private equity, orat least that's one argument why
it could be favorable to PEfirms.
ed--hizzz-_1_07-15-2025_1 (11:14):
Yeah.
rory-liebhart_1_07-15-202 (11:15):
Yeah.
Certainly expanding the marketfor sure.
Yeah.
ed--hizzz-_1_07-15-2025 (11:18):
Because they're, they're in the business
of constantly, we've kind oftalked about it.
They're in two businesses,
rory-liebhart_1_07-15-202 (11:23):
Yeah.
ed--hizzz-_1_07-15-2025_160 (11:24):
and raising capital to invest, and
that's how they make
emily-sander_1_07-15-2025 (11:27):
Yeah.
ed--hizzz-_1_07-15-2025_160 (11:27):
And so if you all of a sudden open
up a multi-trillion dollar poolof investors that can put a
percentage into private equity,that's, that's pretty lucrative.
Now what I, what I would say ison the 401k side, and I've, I.
may have sat in one of theseseats, Rory and I have multiple
times.
Probably half a dozen is 401ktrustee.
(11:50):
So the trustee
rory-liebhart_1_07-15-202 (11:51):
yeah.
ed--hizzz-_1_07-15-2025_160 (11:51):
has a, has.
So a 401k plan will have a boardof trustees that are responsible
for the administration of thatplan, just like, it's like any
other pension.
So it's like a defined benefitpension where they've got
trustees 4 0 1 Ks have trustees.
The trustees are responsible forthe compliance of that plan.
As well as the investmentchoices.
(12:12):
And so you normally will hire athird party administrator to
assist you with theadministration of your pension
plan, whether it's a definedbenefit or 401k, which is
defined contribution plan or anyof the others.
And the trustees are personallyliable and personally
responsible for the.
Fdu, they have a fiduciary dutyto the beneficiaries of the
(12:34):
trust, which are the employees.
And so if you pick investmentsthat are illiquid that, I mean
were, where some of this stuffreally came out was you had
situations like Enron,
emily-sander_1_07-15-2025 (12:47):
Yeah.
ed--hizzz-_1_07-15-2025_1604 (12:48):
to remember because they were one
of my largest clients back in2000, um, where if you were an
Enron employee.
Your company match may have been100% in Enron stock,
emily-sander_1_07-15-2025_1 (13:01):
Oh.
rory-liebhart_1_07-15-202 (13:01):
yeah.
ed--hizzz-_1_07-15-2025_160 (13:02):
and you were encouraged to get put
Enron stock in your 401k becausethey would get a discount on a
purchase.
Well, folks had 4 0 1 Ks thatwere, and then they boom blow up
and there the trustees got suedthey didn't offer sufficient
diversification to the.
To the employees in the 401kplan to ensure that they were
(13:25):
able to of spread out theirwealth.
The second piece of this is theemployer has a, an affirmative
obligation to ensure that theemployees, they're considered to
be unsophisticated investors, sonormally.
When you've got a four, whenyou've got a, a private equity
or you've got a real estate andit's illiquid, non-publicly
(13:49):
traded, you have to be anaccredited investor in order to
be able to make thoseinvestments, which means, you
know, the government says, SECsays, well, you're at least rich
enough to be stupid.
And so, know, you, you can,you've got enough wealth that
you, that we assume you can makeintelligent.
Decisions, and therefore, ohyeah, I, I'm right with you.
(14:09):
But, but you know, they go, youknow, so you can, but you have
to be an accredited investor toinvest in this stuff.
Well, the 401k is assumed thateverybody is an unaccredited
investor, does not have theknowledge to understand how to
diversify, does not understandthings like risk premium does
not understand things like.
(14:30):
and you know how to put a, awell balanced portfolio
together.
And so the employer has anaffirmative duty to provide that
level of, to provide educationaround that and to provide
enough choices so that theemployee can have a well
diversified portfolio.
as a result, you know this, thiscould.
(14:52):
doesn't mean that I, stupid Edcan't go a hundred percent into
private equity and that would bea problem and that could be a
problem for the trustees aswell.
emily-sander_1_07-15-2025_ (15:00):
What do you make of the proposed
managed account model?
rory-liebhart_1_07-15-2025_ (15:04):
As, as far as limiting it only to
those accounts that areprofessionally managed, I think,
think there's, I think there's,I think that's a step in the
right direction.
I also think that if this wereto pro proceed.
You know, the way it'sconsidered is like, uh, plan
sponsors can choose whether toinclude private equity or not,
(15:26):
that there's not a mandate to dothat.
Of course.
That being said, who stands tobenefit from all this?
You know, yes.
The, the plan sponsor can makethe decision, but, you know,
plan administrators probablygonna have an incentive to push
it on you and, you know, kind ofoffer it.
And that goes all the way up thechain.
Right.
You know, so there's that,there's that element.
(15:47):
But, um.
I think those are, those arereasonable steps to take if
you're gonna go down this path,you know?
But what does managed accountreally mean?
Do you have to have a certainlevel of wealth to qualify, or
is that could be a accountmanaged by some hack out there
that doesn't know what they'redoing, you know,
emily-sander_1_07-15-2025_ (16:04):
Hmm.
rory-liebhart_1_07-15-202 (16:05):
yeah.
Um, it, it is interesting, youknow, it's like, well if, uh, if
something like this then becomesavailable.
know, uh, the other side of thecoin is hedge funds, you know,
so like what if somebody wantssome sort of event driven hedge
funds and such to be included in4 0 1 Ks, or, know, uh,
something really esoteric andeven like crypto related
(16:28):
investments are now being.
Ba bandied about is like, Hey,why I wanna be able to in this
from a tax deferred account, etcetera.
Um, I don't know.
There's, this is just one, youknow, one element under
consideration.
So, um, what I want is, I wantpeople to, you know, kind of,
that aren't professionalinvestors.
(16:49):
And our investing their earnedmoney in an investment strategy,
I want them to have the bestshot at retaining that 40 years
from that point in time wherethey can actually utilize it in
retirement.
Not to say that the bottom ofthe market couldn't fall out
right when you're ready toretire and you're screwed.
But you know, I think just keepcoming back to, um, you know,
the risk return profiles.
(17:10):
You know, and alternative assetclasses is different than
publicly traded equities formany reasons.
So.
emily-sander_1_ (17:18):
Hypothetically, if this went through, what would
that do for PE firms?
Would they have to change theirstance or change how they
operate?
Or would some shrug theirshoulders and be like, okay,
that's now a thing.
ed--hizzz-_1_07-15-2025_16043 (17:30):
I
emily-sander_1_07-15-2025_1 (17:30):
I'm gonna go on my way.
ed--hizzz-_1_07-15-2025_16 (17:31):
see.
I think you would see someprivate equity firms go, okay,
we're gonna embrace this model'cause there is a lot of capital
and we're gonna have to developan LP model that is really
driven by essentially a secondlevel institutional investor.
And I'm just trying to, tryingto picture how this would work
(17:52):
in practice.
rory-liebhart_1_07-15-2025 (17:52):
like fees would be pushed down
somehow.
ed--hizzz-_1_07-15-2025_1 (17:55):
Yeah.
rory-liebhart_1_07-15-2025_1 (17:55):
it would be less, less scarcity
value to it.
Um, you know, so the two and 20model, quote unquote might,
might change a
ed--hizzz-_1_07-15-2025_16 (18:05):
This is already, which is already
under pressure anyway.
rory-liebhart_1_07-15- (18:07):
Exactly.
ed--hizzz-_1_07-15-2025_16043 (18:08):
I think it's, I, I think the
other, the other side of thisis, you know, for retirees, and
this, again, I get, I'm, this isthe closest thing I get to
Elizabeth Warren that you'reever gonna see is I'd be one
that goes, look, if you wannahave private equity in, in
retirement funds, that's fine,but it is gotta look like this.
The only choices you have aretarget date retirement funds.
(18:31):
That are well diversified forportfolios.
They have a mix of, of domestic,international, fixed income,
alternative asset and equities.
They're managed byprofessionals.
The underlying elements are ETFsand you retiree or potential
retiree are basically going tobe invested in the markets with
(18:53):
a well diversified portfolio.
And you don't get to trade inand out.
You don't get to change, youknow, basically the allocations
being mathematically driven,
rory-liebhart_1_07-15-20 (19:03):
Right.
ed--hizzz-_1_07-15-20 (19:03):
passively managed, and it's just going to
kind of take you to a 2040target retirement date.
That's my 2040 target retirementfund.
It's actively managed based uponkind, risk, return, and
timelines to be able tooptimize.
I, I get very concerned aroundthe, typical.
(19:24):
I don't even wanna say it's atypical American.
I think as a typical personwants to go, I, I, I know better
when they don't.
an investor when you're not, andI can make a bazillion dollars
and therefore I'm gonna rollthe, I'm putting it all on, you
know, double zero black and putall the chips there and it's
gonna hit maybe and it doesn't.
(19:46):
And so with retirement funds,whether it's IRAs, 4 0 1 Ks.
Pension plans.
The thing is that, like anemployer pension plan, a defined
benefit plan is governed by thegovernment as to like the
rory-liebhart_1_07-15- (19:59):
Larissa.
ed--hizzz-_1_07-15-2025_160 (20:00):
how diversified it has to be, how
liquid it has to be.
What, how the, the actuarialassumptions behind the, the, and
they have to time their,basically, time their, uh,
their, payments such that it'sliquid enough to be able to meet
pension obligation.
You don't have that in your401k.
rory-liebhart_1_07-15-2025_ (20:17):
no.
ed--hizzz-_1_07-15-2025_1604 (20:17):
So I'm like, okay, if you're gonna
do this, if you're gonna open upthis a the asset classes, then
you've gotta start putting someof those same restrictions.
'cause some of the biggestinvestors in private equity are
pension funds, but they have allthese other regulations around
'em to protect thebeneficiaries.
I think if you're gonna do thatin 401k, it goes the same
(20:38):
direction where you go Look, thebeneficiary of a pension defined
benefit pension doesn't get tochoose their investments.
you don't either.
It's just a self self-fundedplan.
emily-sander_1_07-15-2025_1 (20:47):
How would this affect the other LPs,
the traditional LPs that existtoday?
ed--hizzz-_1_07-15-2025_1604 (20:54):
I, I think it makes, here's where I
think it makes it worse.
There's already almost too muchmoney chasing too few deals in
private equity
emily-sander_1_07-15-2025_ (21:04):
Hmm.
ed--hizzz-_1_07-15-2025_160 (21:04):
now you're gonna make more money.
Chase too few deals in privateequity'cause there's gonna be an
influx of capital, which isgonna drive prices up'cause
you've got supply and demand.
So it'll drive prices up on the,on the buy side, you're gonna
have, you may have some goodopportunities on the sell side
for the existing investors, butover the long haul, you know,
(21:26):
with additional funding, it'sgonna drive some of the prices
down.
One of the biggest advantage ofprivate equity the fact that
they go find stuff that youcan't find on the markets.
know, so it's,
rory-liebhart_1_07-15- (21:37):
exactly.
Yeah.
ed--hizzz-_1_07-15-2025_160 (21:38):
and now all of a sudden you're
putting all that in play for allthe
emily-sander_1_07-15-2025 (21:41):
Yeah.
Do, do either of, you know, fromjust a regulation or policy
perspective, is this liketantamount, is this like normal
course of business?
This is how.
Things get teed up and then theyget discarded, or this one gets
teed up like this and it goesthrough a process, or is this
kind of a curve ball?
What?
What does that look like?
rory-liebhart_1_07-15-2025_ (22:01):
Oh, this, this is, this is, this is
normal stuff.
Like I, I, I'm, you know, wasactually surprised to see this
pop up because I, I really,know, had figured it had been
discussed and, you know,analyzed and such up to this
point.
So just when, just reallyearlier this month is really
when the scuttlebutt startedbubbling up.
Uh, no, let's stop this type ofstuff's.
(22:23):
You know, um, really common.
I mean, I'm sure even a fewyears ago, people were trying to
talk about how do we put NFTinvestment opportunities into,
you know, managed,self-directed, you know, and
managed retirement account craplike that.
It's just, there's always,there's, let's just say there's
always there, um, you know,allocations of capital.
(22:46):
Available and there's alwayssomebody trying to match that
with some other offering ofsorts, and there's a lot of
innovation that comes with that.
But there's also a lot of redtape you have to wade through
and make sure it's done.
You know, uh, without damaging,damaging people involved out the
gate.
And so, yeah, I think crypto'sgonna be a big one that's kind
(23:08):
of here to stay.
I think was sort of a flash inthe pan.
I mean, REITs at one point, I'msure went through this kind of
scrutiny and things like that.
Oh, you're, you're, how are yougoing to, you know, allow
somebody to invest in.
As Ed said, an apartment complexin Tacoma, Washington.
Uh, you know, you figure out away to make it liquid and you
make it, uh, you know, havecertain SEC oversight and things
(23:29):
like that.
You know, I, I, I imagine myprediction is, you know, some
version of this will, will makeits way into, into the 401k, you
know?
Uh, yeah, yeah, I do.
I think so.
emily-sander_1_07-15-2025_1 (23:42):
So, okay, so like the cynical part
of me goes from what you've alljust said, is there a person or
like a small group of people atone big PE firm who's like, you
know what, we could bring in somuch more money if we did this.
Why don't we pitch this asfinancial democratization for
(24:04):
the people?
But really we're gonna get ashit ton of money into our firm.
The cynical side, is that
rory-liebhart_1_07-15-202 (24:13):
Well, I think
emily-sander_1_07-15-2025_160 (24:13):
a thing?
ed--hizzz-_1_07-15-2025_160 (24:13):
One of my good friends.
rory-liebhart_1_07-15-2025_1 (24:15):
is looking for a way to access
retail investors.
That's, that's, that's alwaysthe case.
So yeah, you might be right.
There's somebody figuring out acurrent angle on it.
Maybe, maybe with the, thetailwinds of the current
administration having supportedthis for the last four or five
years, now is the time to reallymake a thing of it, you know?
ed--hizzz-_1_07-15-2025_1 (24:35):
Yeah, I was gonna say, as one of my
good friends, uh, Cassandra,Aurora would say, choose you can
have both.
rory-liebhart_1_07-15- (24:44):
Exactly.
ed--hizzz-_1_07-15-2025_16 (24:45):
Your cynicism is absolutely accurate.
but it's, it's not necessarily abad answer.
yes, it's, we can make a ton ofmoney and we've made this
available for democratization.
It's why choose, we could putboth out there and that's the
American way.
That's capitalism.
rory-liebhart_1_07-15-2025_ (25:05):
is.
ed--hizzz-_1_07-15-2025 (25:05):
That's,
rory-liebhart_1_07-15-2025_ (25:06):
is.
ed--hizzz-_1_07-15-2025_ (25:06):
that's capitalism.
emily-sander_1_07-15-2025_16 (25:07):
It too.
rory-liebhart_1_07-15- (25:08):
stopping that mentality.
It'll never change.
Humans are humans and Yeah, Imean, and, and it's like we
legislate as we go and we, youknow, put forth regulations as
we go and our best, but there'salways gonna be, you know, ways
to.
Yeah.
What ways for people to, to outhow to make more money in sooner
(25:28):
off of other people, so
ed--hizzz-_1_07-15-2025_1 (25:30):
I'll, I'll give a, I'll give it a,
I'll give a example because Ilived the example at, uh,
beautiful accredited homelenders.
rory-liebhart_1_07-15-2025 (25:37):
yes.
ed--hizzz-_1_07-15-2025_16 (25:37):
back in, back in 2000, in the early
two thousands during, in thelate 1990s during the Clinton
administration, they opened up,they essentially said exactly
what you just said, em.
with mortgages, we're gonnademocratize the mortgage
industry, so we're gonna
emily-sander_1_07-15-2025_16 (25:52):
Oh yeah.
ed--hizzz-_1_07-15-2025_1 (25:53):
We're gonna encourage investment into
under, under invested areas.
We're gonna reduce the, theunderwriting criteria so that
more people could buy their ownhomes.
We're gonna really create thisbig, this big real estate, um,
capability for people to buyhomes and become, you know,
permanent members of, of thatneighborhood.
(26:15):
And, you know, open up homeownership to whole groups of
folks that never had it before.
And there was not sufficientregulation.
And so as a result, what you hadwas basically government
incentives to go do thesethings.
People made a ton of money.
rory-liebhart_1_07-15-2025_1 (26:30):
Oh yeah.
ed--hizzz-_1_07-15-2025_160 (26:30):
And then you had a bunch of folks
go, oh, well they could make aton of money.
Let's, you know, and they tookthe guardrails off, let's kind
of spread the, spread the wholething out.
And but the assumption from theborrower, because you're signing
this form and this form and regthis and this that, and oh, the
government's said this is allokay, so it's fine.
And then it blows up, you know,10 years later and they're like,
(26:52):
well, you know, this is, Ididn't understand this.
Could have the same effect
rory-liebhart_1_07-15-202 (26:56):
Yeah.
I
emily-sander_1_07-15-2025_ (26:57):
Hmm.
rory-liebhart_1_07-15-202 (26:58):
it's, it's a
ed--hizzz-_1_07-15-2025_1604 (26:58):
on retirement.
rory-liebhart_1_07-15- (27:00):
there's, there's not, you know, unless
there's, uh, know, governmentalin intervention, it's always
gonna be, someone's gonna winmore.
And somebody's gonna lose more.
It's, you know, it's, that's theway it is.
So you just try to mitigate thaton both sides with risk
management.
So, you know, think there'sgonna always be a way to, um,
(27:24):
innovate, uh, ways to, you know,make more money through
investment, professionalinvestment strategies, but it's
gonna come at the cost of.
Some someone or some cruisegroup or some counterparty.
That's that's for sure.
So,
ed--hizzz-_1_07-15-2025_160 (27:39):
Now if you.
rory-liebhart_1_07-1 (27:39):
government ends up stepping in is sort of
buffering that to some
ed--hizzz-_1_07-15-2025_1 (27:42):
Well, and the, the other side of that
is the government, whether itwas a mortgage business or
whether it's in retirementaccounts, the, the moral hazard
is the government backstops allthis stuff with ERISA in that
case, or with Freddie Fanny andthe, you know, the,
rory-liebhart_1_07-15-20 (28:01):
point.
ed--hizzz-_1_07-15-2025_160 (28:02):
and so what you've got is there's no
incentive.
For anybody to mitigate theirrisk because they know if it
blows up spectacularly, thegovernment will bail their ass
out.
rory-liebhart_1_07-15-2025_1 (28:11):
It ain't
ed--hizzz-_1_07-15-2025_160 (28:11):
And so that's where, that's where
I'm like, look, on the currentstructure for private equity, if
it blows up, the government'snot backstopping any of that,
rory-liebhart_1_07-15-202 (28:21):
Yeah,
ed--hizzz-_1_07-15-2025 (28:21):
you're, you're just
rory-liebhart_1_07-15-2025 (28:23):
that
ed--hizzz-_1_07-15-2025_1604 (28:23):
in the water
rory-liebhart_1_07-15-2025 (28:23):
Like
ed--hizzz-_1_07-15-2025_160 (28:24):
You lose your money.
You're going
rory-liebhart_1_07-15-2025_1 (28:25):
in the territory that the big banks
were in.
Like they're, they're
ed--hizzz-_1_07-15-2025_160 (28:28):
too big to fail.
rory-liebhart_1_07-15-2025_16 (28:30):
I mean, that's the world we're in
now.
It's not just the banking sectorthat is too big to fail.
It's the whole, economic sector,whole financial sector.
It's, it's a, it's, it'sactually, it's interesting how
different a world it is now thanit was in 2010
ed--hizzz-_1_07-15-2025_160 (28:44):
And I'll just let the folks
listening know, we didn't planthis part, but we're headed
down.
This is kind of down a rabbithole for another pod.
Like has equity become a sectorthat's too big to take?
rory-liebhart_1_07-15-20 (28:56):
that's a great one.
Yeah, we'll
emily-sander_1_07-15-2025_16 (28:58):
If you were in,
rory-liebhart_1_07-15-20 (28:59):
That's gonna be a
emily-sander_1_07-15-2025_16 (29:00):
if you were, let's, let's say
hypothetical, you guys were inthe government and you could
make whatever regulations aroundthis, this had to go through,
you had to introduce privateequity.
But you could structure it andputting any regulations you
wanted on it.
What is the most elegant way todo that?
ed--hizzz-_1_07-15-2025_16043 (29:18):
I gave, so I'm from the
government.
I'm here to help.
That's my favorite.
That goes with my Reagan Bush 8484 bumper sticker on my new car.
uh,
rory-liebhart_1_07-15-202 (29:31):
well, the original,
ed--hizzz-_1_07-15-2025_1604 (29:32):
I, I, I kind of laid it out.
The, what I would do is go,look, you, you've gotta, it,
it's gotta be part of aportfolio where the only thing
you can have is a, is a targetretirement, target date
retirement fund.
And, you know, it's, it's inthere.
So it's almost like a managedportfolio in a case that you
know, which is part of theoverarching current.
Proposal except that it's evenmore, it's less, it's, it's more
(29:58):
managed and the, the.
The person who's making theinvestment, the employee making
the investment, really has nocontrol.
And then it becomes a, you can'thave too much concentration in
any one thing.
You've got the, you know, thetrustees have have restrictions,
so I, you know, a typicalpension fund won't have more
than 10% or so in alternativeinvestments, maybe 15%.
And I think you put those samepension fund, pension fund
(30:21):
requirements.
On these managed, managedretirement funds that are, you
know, target date retirementfunds and sitting in 4 0 1 Ks,
and that probably would get mecomfortable enough to, not
panic, but I still hate themoral hazard of ERISA backstop
and all this stuff.
rory-liebhart_1_07-15-202 (30:37):
Yeah, completely agree.
Yeah, I don't have much to addto that.
I think, I mean, the couplethings I do, I do like about,
you know, maybe where it's kindof sitting at right now is the
thought that, know, it would be,uh, specific to managed accounts
and also, uh, sponsors wouldhave to opt in, you know, so a
trustee representing the companywould really have to think about
(30:59):
how much liability they want totake on as that trustee to
sponsor a plan.
That's got, you know, a privateequity, uh, you know, kind of
unfiltered private equityallocation potential to it, and
not the least of which is peopleare gonna just whether or not
it's, uh, you know, withinbounds or not.
You know, if, if, like, youknow, if, if you know of your
(31:21):
staff, you know, madeinvestments through their 4 0 1
in a big, big, uh, allocation ofprivate equity and just.
to that sector having issues orsomething like that, lose a
bunch of money, you're gonnahave a bunch of pissed off
employees that you're gonna haveto deal with.
And, you know,
emily-sander_1_07-15-2025_1 (31:36):
Oh.
rory-liebhart_1_07-15-202 (31:36):
just, that's just part of it.
Where, index funds that are, youknow, publicly traded and stuff,
that doesn't create that muchwild fluctuation that's away
from the general macroeconomic
emily-sander_1_07-15-2025_ (31:47):
What warning labels would you give
people?
Like if you're from thegovernment, you're here to help,
like, hey, sudden drops inliquidity may occur.
Just know that going into this,this thing.
rory-liebhart_1_07-15-202 (31:58):
Yeah,
ed--hizzz-_1_07-15-2025_160 (31:58):
Um,
rory-liebhart_1_07-15-20 (31:59):
point.
Yeah, I mean, a
ed--hizzz-_1_07-15-202 (32:00):
there's.
rory-liebhart_1_07-15-2025_1 (32:01):
on what it really is, like use of
leverage.
I don't think people think aboutthat aspect of it too much.
They just oh, private equitymeans higher return because you
know it's an alternativeinvestment class.
Well, what generates thosereturns is a use of leverage for
the most part.
ed--hizzz-_1_07-15-2025_1604 (32:15):
So I'll, I'll go to the, to the,
California has a, has aregulation which basically says
if something can cause birthdefects or cancer, you have to
label it as it can cause birthdefects or cancer.
And what ends up happening iseverything is labeled.
Because if you don't know, youhave to label it.
And so you know everything islabeled, so then no one pays
(32:37):
attention.
When it comes to investments,every stock, every mutual fund,
every has a list of list ofrisks and a prospectus, or in
the S one that basically says,here's all the, and no one reads
it, and so it's you.
You come out.
rory-liebhart_1_07-15-2025 (32:52):
Also true.
ed--hizzz-_1_07-15-2025_160 (32:53):
You could come out and you could
come out with the, and here's,you know, it, it's, it's the,
the way that these, thegovernment, and again, I, I tend
to be very libertarian in myapproach anyway, but the
government puts theseregulations out and that's why I
said that people get a falsesense of security.
'cause they sign these thingssaying, you know, according to
Reg fd I did at, you know, I,all this stuff was disclosed.
(33:14):
I didn't really read it.
And it sounds like one of thosestupid, like ozempic commercials
where, you know, this may cause,you know, hair to grow outta
your nose and you know, yourears are gonna pointy like an
elf and all this other stuff.
And they say so fast, you know,during the TV ad, you're gonna
get that on, you get that on theinvestment side too, and it's
all worthless, useless.
(33:35):
Cover your ass stuff for thetrustee.
That's, that's all it, that'sall the good it serves.
rory-liebhart_1_07-15-2025_ (33:40):
All right.
Ed's now officially beengovernment in the high
regulation.
No, I'm kidding.
emily-sander_1_07-15-2025 (33:49):
What, what?
Guys predictions for this.
Would you say this goes througheventually or no?
And if so, timing?
How soon does this go through?
rory-liebhart_1_07-15-202 (33:58):
shoot the clip, the clip that things
are getting implemented now.
I mean, I will say that aboutthe current administration, they
don't, you know, things arehappening fast.
I'd say, you know, soon, soonerrather than later.
Perhaps like within the next 12months, I would think.
ed--hizzz-_1_07-15-2025_1 (34:12):
Yeah, it'll happen before the next
Congress.
If it happens, it'll happenbefore the next congressional
election.
rory-liebhart_1_07-15 (34:17):
midterms.
Yeah.
ed--hizzz-_1_07-15-2025_16 (34:18):
And.
Although this could beregulatory, so it may be able to
buy, it may, they may be able touse administrative procedures
Act, throw it into regulation,not have to run it as
legislation, you know, so it, itmay, may be longer than that,
but I would generally say, look,Liz, Liz, Warren, and I, I'm
gonna actually go into a story.
(34:40):
I've got a, I've got a storyfor, for,
emily-sander_1_07-15-2025_160 (34:42):
I with her.
ed--hizzz-_1_07-15-2025_160 (34:45):
so, so I, I would say that.
Her concerns are, are concernsthat are going to be shared by
many of her colleagues.
So, you know, Bernie's gonnafeel the same way, and so and
so, it wouldn't surprise me ifyou see it.
The composition and the, theSenate and Congress are so
evenly divided now that thatcomposition is likely to swing
in midterms.
(35:05):
It normally goes against theparty in power.
And so as a result, I wouldexpect if it doesn't happen by
then, it's not gonna happen.
Now I'm gonna, I'm gonna throwin a, a story'cause Rory might
remember this.
So back when the BankruptcyReform Act was passing
rory-liebhart_1_07-15-2025 (35:21):
2005 baby.
ed--hizzz-_1_07-15-2025_16 (35:22):
back in 2005, our general counsel
rory-liebhart_1_07-15-2 (35:26):
Mm-hmm.
ed--hizzz-_1_07-15-2025_1604 (35:26):
at Beline Lobbed in a call to
Professor Elizabeth Warren totry and get her hired to do a
consulting gig for us tounderstand what the impacts of
the change of the regulationswere gonna be.
With the new Bankruptcy ReformAct
rory-liebhart_1_07-15- (35:46):
amazing.
ed--hizzz-_1_07-15-2025_160 (35:47):
and Elizabeth Warren asked what type
of business we were in and wesaid, well, we're a debt buyer
and we buy bankrupt consumerdebt.
And she told, she told ourgeneral counsel, who was a
Harvard law grad who kind ofknew he, she basically told him
to go pound sand and there wasno way she was, and that
companies like ours should,should not exist.
And she hung up on'em on thephone.
rory-liebhart_1_07-15-2025_16 (36:09):
I did not know that.
What a story.
ed--hizzz-_1_07-15-2025_1 (36:11):
Yeah.
And she wanted, initially it waslike a$800 an hour or a thousand
dollars an hour to do theconsulting work.
And this was like in 2005,
rory-liebhart_1_07-15-202 (36:20):
yeah.
emily-sander_1_07-15-2025_ (36:20):
Wow.
ed--hizzz-_1_07-15-2025_1604 (36:21):
so 20 years ago.
rory-liebhart_1_07- (36:22):
Incredible.
ed--hizzz-_1_07-15-202 (36:23):
exposure to Elizabeth Warren.
'cause she was a bankruptcyprofessor, a law professor at,
uh,
rory-liebhart_1_07-15-202 (36:28):
that.
ed--hizzz-_1_07-15-2025_1 (36:28):
yeah.
At Harvard?
emily-sander_1_07-15-2025_1 (36:30):
Did you ever speak with her or was
that just through your Okay.
ed--hizzz-_1_07-15-2025_1604 (36:33):
it was, uh, it was our GC did all
the, did all the speaking.
emily-sander_1_07-15-2025_1 (36:37):
She was like, you can go fly a kite
is what you can do.
And then decades later, you'reBFFs.
ed--hizzz-_1_07-15-2025_1 (36:45):
Yeah.
We're BFFs.
I call her Liz now because I.
rory-liebhart_1_07-15-2025 (36:48):
what I'll say is the, the, the sort
of the, I think it's right theway that, know, she is
approaching this, I mean, she'sasking the right questions.
I, I, I read the.
The letter that she wrote toEmpower, and, you know, they've
yet empower being the companywith a ton of, uh, records on
retirement plans and things likethat.
It was kind of like trying tospearhead this from the other
(37:10):
side.
You know, the, the questionsare, you know, to the point
logical, basically asked in themanner of like, how are you
gonna protect the average Joe,uh, here through this?
What is your, in other words,what's your, what's your, what's
your angle here?
Dude, you know, like, what areyou trying to accomplish here?
is the, is is not the privateequity current, uh, market and,
(37:32):
you know, uh, capitalization andall that stuff.
Good enough.
Like what's the deal?
Uh, anyway, uh, so we'll seethis unfold.
It's been, it's kind of a funone to follow, honestly.
emily-sander_1_07-15-2025_ (37:42):
Exit question for you two.
What sounds riskier?
Pri putting private equity in 40 1 Ks or letting chat GBT pick
your portfolio.
ed--hizzz-_1_07-15-2025_16 (37:55):
Wow.
rory-liebhart_1_07-15-20 (37:56):
What's risker?
Hmm?
ed--hizzz-_1_07-15-2025_160 (37:59):
You know, I'm actually gonna go with
the putting 4 0 1 Ks in theportfolio or putting, putting,
putting the, uh, private equityin a 401k because,
rory-liebhart_1_07-15-202 (38:07):
Okay.
ed--hizzz-_1_07-15-2025_1 (38:07):
yeah, because GPT is gonna, is gonna
analyze all the informationthat's out there, is going to
hoovered up a bunch of, a bunchof data is gonna be applying
things like risk premium to aportfolio.
And if you ask the questionright, you're gonna actually
probably get a well diversifiedportfolio that you should be
investing in versus.
You know, private equity in your401k, you know, that's relying
(38:30):
on me to make that choice for my401k, and I'm, and I'm an idiot.
rory-liebhart_1_07-15-20 (38:35):
That's a good answer.
ed--hizzz-_1_07-15-2025_ (38:37):
wisdom of crowds is, is going to win.
emily-sander_1_07-15-2025_1 (38:40):
You need a good prompt for that?
You'd want a good prompt forthat.
Chad, GBT.
ed--hizzz-_1_07-15-2025_1604 (38:44):
a, I'm a fricking problem engineer.
That's, that's what I am.
rory-liebhart_1_07-15-202 (38:48):
Yeah, I, I, I'd say, I'll just take
the other side of the coin justfor the heck of it, only to say
that, you know.
I think there will be moreinherent, uh, built-in controls
if it, if it goes into playwhere you can, you know, pick
private
emily-sander_1_07-15-2025_ (39:01):
Hmm.
rory-liebhart_1_07-15-202 (39:02):
funds outta your 401k.
It, it just, it's not gonna passwithout control and chat.
BD can hallucinate and, youknow, all this, all these things
and you know, you just neverknow, even though it does have
all of the internet that to drawon.
So, yeah, I don't know.
Tough, tough call.
Probably ultimately agree withthe chat GPT answer, but I
needed to put something outthere for the other side.
emily-sander_1_07-15-2025_1 (39:22):
All right.
We got both sides of it now.
Thank you, Rory.
Thank you, ed.
rory-liebhart_1_07-15-2025 (39:25):
you.
Good to see you.
Yeah, we'll talk again soon.
Senator Warren pushes back on private
equity and 4 0 1 Ks.
Here's what's happening.
Empower retirement, A major 401krecord keeper serving about
90,000 employers, has proposedoffering private equity, private
credit, and private real estateas options within participant
accounts, but only for those inmanaged accounts with
professional oversight.
(00:54):
Senator Warren, ranking memberof the Senate Banking Committee
fired off appointed letter toEmpower CEO raising concerns
about one, lack of transparencyin private funds, two high and
opaque fee structures, and threeliquidity risks If investors
wanna exit when the marketsturn.
Ed and Rory, what are your hottakes?
ed--hizzz-_1_07-15-2025_1604 (01:14):
I, uh, I will give you my, my
commentary I made before westarted the pod, which was.
This is probably the first timein my professional career.
I agree with Elizabeth Warren onanything
rory-liebhart_1_07-15-202 (01:26):
Yeah.
Mm-hmm.
ed--hizzz-_1_07-15-2025_1604 (01:29):
I, I am, I am.
Absolutely.
After everything we've discussedaround private equity, I think
the thought process of going toa pure or a true private equity
type asset, where it has longhold periods.
Illiquidity volatility inpricing.
(01:52):
The, the market is inefficient.
The, you know, that's just not,that's just not where I think
the average Joe, regardless ofhow professional their
portfolio's managed, um, shouldbe having their retirement funds
at least at, you know, I thinkthere's, there's gotta be a lot
of controls around it, and Ithink her admonition to go back
(02:13):
and try again is a, is a goodone.
rory-liebhart_1_07-15-202 (02:17):
Yeah,
emily-sander_1_07-15-2025 (02:17):
Rory.
rory-liebhart_1_07-15-2025_1 (02:17):
I, I, I generally agree with that.
Um, you know, it's, this standsto reason that this is what
we're talking about here is a$38trillion pocket of, of assets
that are being managed.
So, of course.
You know, um, for somestakeholders involved, you know,
having access to that, to putyour offerings out there is
(02:39):
enticing, you know, for so manyreasons.
where I, where I generally agreewith Ed is I don't think that
this is necessarily the.
Right kind of asset class for a401k.
Um, you know, kind of where, asyou said, you know, average
Joe's, that's where theyaccumulate their retirement.
So, you know, the potential forswings in that has a lot of
(03:00):
implications.
And, and that's not to say thatthere aren't other ways that.
Private investors can getinvolved with private equity.
This is a whole nother ballgame.
I mean,
ed--hizzz-_1_07-15-2025_1604 (03:09):
Oh yeah.
rory-liebhart_1_07-15-2025 (03:09):
take it away from 401k.
There's self-directed IRAs.
I've invested in private equityout of my own self-directed
IRAs, so it's not like this isthe only game in town to invest
in, in, uh, private equity.
But, um.
I think that this is justnaturally one of those elements
that comes up, you know, with,the current administration.
I think this, this whole topicwas really actually introduced
(03:31):
by Donald Trump back in 2020.
I learned.
Um, and so it's kind of reppercolated again.
Uh, and so now it's getting somefresh debate around all things
Ed talked about, which is, youknow, um, access to information,
long, long hold periods, fees,all this stuff that.
You know, I think, um, is worth,worth a debate.
(03:54):
So where it's at right now is,there's a debate going on
between led by Elizabeth Warren,but you know, with, with others
involved.
And I think that's what needs tohappen.
I think, um, you know, it's notjust a easy answer.
You know, kind of reminds me ofpeople wanting to do away with
like social security.
Hey, I can manage my owninvestments just fine.
I'm a, you know.
(04:16):
You know, individual that canmake strong choices.
Yeah.
Well, I mean, markets alsomatter too.
So, um, anyway, lots to talkabout, lots to unpack, but
that's my
emily-sander_1_07-15-2025 (04:24):
Yeah, I mean this was, this was from a
article that you brought to thetable, Rory.
So this is, this is literally inthe news and I was trying to
think of.
An analogy and it, it was, it'skind of like an amusement park
where you have like publicmarkets, like, I don't know,
stocks and bonds or like yourvanilla rides or like the
standard rides like the Ferriswheel and the bumper cars or
(04:46):
whatever.
They're predictable.
You can get on and get off andthen imagine there's like this
gated part of the amusement parkthat's now been opened and it's
like private equity land and youcan go on high speed
rollercoasters and you can havebig thrills and big risks, but.
It's been closed off unlessyou've been institutional money
(05:06):
or like very high net worthindividuals.
And now Empower wants to openthose gates, but have like the
safety checks been done and areall the height requirements to
point and all those things.
So like Elizabeth Warren issaying like, are you sure that
you, this is ready for primetime?
Can regular folks really handlethis?
Average Joes really handle this.
(05:26):
So,
rory-liebhart_1_07-15-202 (05:27):
Yeah,
emily-sander_1_07-15-2025_1 (05:28):
um.
rory-liebhart_1_07-15-2025 (05:28):
not, I would say actually, uh, most
likely not.
Um, yeah, for, for all, allthose.
Thing.
Things you might just generallythink about is, you know, you
can make a case for givingaverage Joe a shot at
diversification Alternativeasset classes.
As we talk about in our book,and we've talked on this
(05:49):
podcast, it's, it's a legitimateasset class, but it comes with
its own characteristics.
So a lot of times you like tohear in.
The proponents for these thingsare saying, you know, well,
higher, higher return potentialthan your, you know, 7% con
compounded average s and p 500returns, or whatever that is
over time.
Yeah, here's an opportunity tomake, you know, 15, 20%, but
then start digging under thehood of what that means is, you
(06:15):
know, that comes with more riskand is the goal of a 401k plan
to be administered to provide.
You know, plan participants withhighest possible return or give
'em the best shot at, you know,having a nest egg for
retirement.
I think that's probably where,know, uh, the, the overall
critics of something like thiswould come from.
ed--hizzz-_1_07-15-2025_1 (06:37):
Well, and I, and I would go, uh, I'd
go a step further.
I think it's a, there's an, andboth here.
so when you look at, um,alternative asset classes in
general, all the concerns aroundilliquidity and lack of
diversification and, you know,the, the cost to administer and
(06:58):
all those elements.
And so a direct investment froma 401k into, know, a, a, a.
Direct fund is probably not theway to go.
Now, what I would say is, youknow, I, I would say the same
thing about someone going, well,we're gonna put, you know,
apartment complexes in our 401k,or we're gonna put,
rory-liebhart_1_07-15-202 (07:17):
Yeah.
ed--hizzz-_1_07-15-2025_160 (07:17):
but what I would say is, you can get
there, but the, it's, it's likeusing the ETF version
rory-liebhart_1_07-15-202 (07:23):
Yeah.
ed--hizzz-_1_07-15-2025_160 (07:24):
you can use
emily-sander_1_07-15-2025_16 (07:25):
Oh
ed--hizzz-_1_07-15-2025_1604 (07:25):
to make your,
emily-sander_1_07-15-2025 (07:26):
yeah.
ed--hizzz-_1_07-15-2025_1604 (07:26):
to make your investments into real
estate.
If you wanna have real estate inyour 401k.
So there's normally a, a gooddiversified 401k will have a
REIT option.
And you know what I would say isa, is a potential, and I even
say self-directed IRAs andthings like that.
There's a, there's a risk levelthere for illiquidity that's
structured you want exposure to,to private equity.
(07:50):
And you don't want to have thedownside of illiquidity.
There's, you can.
Buy stock in KKR.
You could buy stock inBlackRock.
rory-liebhart_1_07-15-20 (08:00):
That's
ed--hizzz-_1_07-15-2025_1604 (08:00):
So you can invest in the, in the GP
essentially, and get the sameride.
And I, so in prep for this, Ipulled up those 2K KR, and
Blackstone.
So five year return onBlackstone stock Liquid could
buy it today, sell it tomorrow,do all the things you, you wanna
do.
Five year return on Blackstone,185.5%.
(08:23):
Five-year return on KKR 292.25%five-year return on the s and p
593.38%.
So you could get those outsizedreturns, you could get that
diversification, you can dothose kind of investments
without the, the downside.
Now you're not gonna get, maybeif you had gone direct, you
might get another 500 basispoints, but.
rory-liebhart_1_07-15-202 (08:45):
Yeah.
ed--hizzz-_1_07-15-2025_160 (08:47):
For the typical investor, and I
would put myself in thatcategory'cause I don't have, you
know, seven figures, eightfigures to go dump into this and
not think about the liquidity ofthat.
rory-liebhart_1_07-15-20 (08:56):
Right.
ed--hizzz-_1_07-15-2025_1604 (08:58):
if I was, if I was, if I wanted to
make a direct investment, if Iwanna make an investment in
private equity, that's thedirection I'm gonna go.
And I get the kind of the bestof both worlds.
I get the liquidity of apublicly traded vehicle with.
The, the return characteristicsof private equity, just, you
know, potentially, you know,there's gonna be more over at
(09:20):
associated with both trading andmanagement with those, it's
almost like A-P-E-E-T-F
rory-liebhart_1_07-15-2 (09:25):
Mm-hmm.
ed--hizzz-_1_07-15-2025_160 (09:26):
and you can, you can kind of pull
that and it's gonna pull some ofthat return out, but you're
gonna get the, the trade offsgonna be the liquidity and other
things that I think are almostimpossible to, to get if you're
a direct investment in a privateequity.
rory-liebhart_1_07-15-2025_16 (09:40):
I mean there's, there's plenty of
ways to access privateinvestments.
So in this case, you, you justask yourself, you know.
What, what, what privateinvestments would you, would you
put in a 401k plan?
Basically like anything that'snot a public company is a
private investment, so thatcould be literally anything.
Uh, so, you know, I think peoplethat are, you know, against
(10:03):
something like this, they kindof lean on the fact that the SEC
is kind of the governing bodyover public companies, which it
is.
you know, what, what, uh,measures can you put in place to
make sure that the privateinvestments that you're offering
to Joe Average, you know, is,know, a legitimate offering, you
know?
(10:23):
Um, there's so much, much, it'sso vast, you know, so the, the,
the, the.
Landscape.
So how do you qualify what's,what's available?
And you know, typically that'llend up go, I would think if it
does go that way, I've, youknow, kind of read about this,
you know, Blackstone is kind ofthe one that's sort of put it
out there, Hey, we wanna offerour funds to, you know, uh, 401k
(10:44):
investors.
And so that's how I think a lotof this got pushed up to the
current is like Blackstone, youknow, looking for probably, uh,
distribution network foraccessing$38 trillion of,
ed--hizzz-_1_07-15-2025_160 (10:57):
How do I, how do I get more, how do
I get more limited partners
rory-liebhart_1_07-15- (11:00):
exactly.
ed--hizzz-_1_07-15-2025_16043 (11:01):
I can get a larger pool so I can
get a bigger
rory-liebhart_1_07-15-202 (11:03):
where the big guys are gonna drive it,
probably, you know, anythingthat goes
emily-sander_1_07-15-2025_1 (11:06):
So, so that's, that's how it's f
favorable to private equity, orat least that's one argument why
it could be favorable to PEfirms.
ed--hizzz-_1_07-15-2025_1 (11:14):
Yeah.
rory-liebhart_1_07-15-202 (11:15):
Yeah.
Certainly expanding the marketfor sure.
Yeah.
ed--hizzz-_1_07-15-2025 (11:18):
Because they're, they're in the business
of constantly, we've kind oftalked about it.
They're in two businesses,
rory-liebhart_1_07-15-202 (11:23):
Yeah.
ed--hizzz-_1_07-15-2025_160 (11:24):
and raising capital to invest, and
that's how they make
emily-sander_1_07-15-2025 (11:27):
Yeah.
ed--hizzz-_1_07-15-2025_160 (11:27):
And so if you all of a sudden open
up a multi-trillion dollar poolof investors that can put a
percentage into private equity,that's, that's pretty lucrative.
Now what I, what I would say ison the 401k side, and I've, I.
may have sat in one of theseseats, Rory and I have multiple
times.
Probably half a dozen is 401ktrustee.
(11:50):
So the trustee
rory-liebhart_1_07-15-202 (11:51):
yeah.
ed--hizzz-_1_07-15-2025_160 (11:51):
has a, has.
So a 401k plan will have a boardof trustees that are responsible
for the administration of thatplan, just like, it's like any
other pension.
So it's like a defined benefitpension where they've got
trustees 4 0 1 Ks have trustees.
The trustees are responsible forthe compliance of that plan.
As well as the investmentchoices.
(12:12):
And so you normally will hire athird party administrator to
assist you with theadministration of your pension
plan, whether it's a definedbenefit or 401k, which is
defined contribution plan or anyof the others.
And the trustees are personallyliable and personally
responsible for the.
Fdu, they have a fiduciary dutyto the beneficiaries of the
(12:34):
trust, which are the employees.
And so if you pick investmentsthat are illiquid that, I mean
were, where some of this stuffreally came out was you had
situations like Enron,
emily-sander_1_07-15-2025 (12:47):
Yeah.
ed--hizzz-_1_07-15-2025_1604 (12:48):
to remember because they were one
of my largest clients back in2000, um, where if you were an
Enron employee.
Your company match may have been100% in Enron stock,
emily-sander_1_07-15-2025_1 (13:01):
Oh.
rory-liebhart_1_07-15-202 (13:01):
yeah.
ed--hizzz-_1_07-15-2025_160 (13:02):
and you were encouraged to get put
Enron stock in your 401k becausethey would get a discount on a
purchase.
Well, folks had 4 0 1 Ks thatwere, and then they boom blow up
and there the trustees got suedthey didn't offer sufficient
diversification to the.
To the employees in the 401kplan to ensure that they were
(13:25):
able to of spread out theirwealth.
The second piece of this is theemployer has a, an affirmative
obligation to ensure that theemployees, they're considered to
be unsophisticated investors, sonormally.
When you've got a four, whenyou've got a, a private equity
or you've got a real estate andit's illiquid, non-publicly
(13:49):
traded, you have to be anaccredited investor in order to
be able to make thoseinvestments, which means, you
know, the government says, SECsays, well, you're at least rich
enough to be stupid.
And so, know, you, you can,you've got enough wealth that
you, that we assume you can makeintelligent.
Decisions, and therefore, ohyeah, I, I'm right with you.
(14:09):
But, but you know, they go, youknow, so you can, but you have
to be an accredited investor toinvest in this stuff.
Well, the 401k is assumed thateverybody is an unaccredited
investor, does not have theknowledge to understand how to
diversify, does not understandthings like risk premium does
not understand things like.
(14:30):
and you know how to put a, awell balanced portfolio
together.
And so the employer has anaffirmative duty to provide that
level of, to provide educationaround that and to provide
enough choices so that theemployee can have a well
diversified portfolio.
as a result, you know this, thiscould.
(14:52):
doesn't mean that I, stupid Edcan't go a hundred percent into
private equity and that would bea problem and that could be a
problem for the trustees aswell.
emily-sander_1_07-15-2025_ (15:00):
What do you make of the proposed
managed account model?
rory-liebhart_1_07-15-2025_ (15:04):
As, as far as limiting it only to
those accounts that areprofessionally managed, I think,
think there's, I think there's,I think that's a step in the
right direction.
I also think that if this wereto pro proceed.
You know, the way it'sconsidered is like, uh, plan
sponsors can choose whether toinclude private equity or not,
(15:26):
that there's not a mandate to dothat.
Of course.
That being said, who stands tobenefit from all this?
You know, yes.
The, the plan sponsor can makethe decision, but, you know,
plan administrators probablygonna have an incentive to push
it on you and, you know, kind ofoffer it.
And that goes all the way up thechain.
Right.
You know, so there's that,there's that element.
(15:47):
But, um.
I think those are, those arereasonable steps to take if
you're gonna go down this path,you know?
But what does managed accountreally mean?
Do you have to have a certainlevel of wealth to qualify, or
is that could be a accountmanaged by some hack out there
that doesn't know what they'redoing, you know,
emily-sander_1_07-15-2025_ (16:04):
Hmm.
rory-liebhart_1_07-15-202 (16:05):
yeah.
Um, it, it is interesting, youknow, it's like, well if, uh, if
something like this then becomesavailable.
know, uh, the other side of thecoin is hedge funds, you know,
so like what if somebody wantssome sort of event driven hedge
funds and such to be included in4 0 1 Ks, or, know, uh,
something really esoteric andeven like crypto related
(16:28):
investments are now being.
Ba bandied about is like, Hey,why I wanna be able to in this
from a tax deferred account, etcetera.
Um, I don't know.
There's, this is just one, youknow, one element under
consideration.
So, um, what I want is, I wantpeople to, you know, kind of,
that aren't professionalinvestors.
(16:49):
And our investing their earnedmoney in an investment strategy,
I want them to have the bestshot at retaining that 40 years
from that point in time wherethey can actually utilize it in
retirement.
Not to say that the bottom ofthe market couldn't fall out
right when you're ready toretire and you're screwed.
But you know, I think just keepcoming back to, um, you know,
the risk return profiles.
(17:10):
You know, and alternative assetclasses is different than
publicly traded equities formany reasons.
So.
emily-sander_1_ (17:18):
Hypothetically, if this went through, what would
that do for PE firms?
Would they have to change theirstance or change how they
operate?
Or would some shrug theirshoulders and be like, okay,
that's now a thing.
ed--hizzz-_1_07-15-2025_16043 (17:30):
I
emily-sander_1_07-15-2025_1 (17:30):
I'm gonna go on my way.
ed--hizzz-_1_07-15-2025_16 (17:31):
see.
I think you would see someprivate equity firms go, okay,
we're gonna embrace this model'cause there is a lot of capital
and we're gonna have to developan LP model that is really
driven by essentially a secondlevel institutional investor.
And I'm just trying to, tryingto picture how this would work
(17:52):
in practice.
rory-liebhart_1_07-15-2025 (17:52):
like fees would be pushed down
somehow.
ed--hizzz-_1_07-15-2025_1 (17:55):
Yeah.
rory-liebhart_1_07-15-2025_1 (17:55):
it would be less, less scarcity
value to it.
Um, you know, so the two and 20model, quote unquote might,
might change a
ed--hizzz-_1_07-15-2025_16 (18:05):
This is already, which is already
under pressure anyway.
rory-liebhart_1_07-15- (18:07):
Exactly.
ed--hizzz-_1_07-15-2025_16043 (18:08):
I think it's, I, I think the
other, the other side of thisis, you know, for retirees, and
this, again, I get, I'm, this isthe closest thing I get to
Elizabeth Warren that you'reever gonna see is I'd be one
that goes, look, if you wannahave private equity in, in
retirement funds, that's fine,but it is gotta look like this.
The only choices you have aretarget date retirement funds.
(18:31):
That are well diversified forportfolios.
They have a mix of, of domestic,international, fixed income,
alternative asset and equities.
They're managed byprofessionals.
The underlying elements are ETFsand you retiree or potential
retiree are basically going tobe invested in the markets with
(18:53):
a well diversified portfolio.
And you don't get to trade inand out.
You don't get to change, youknow, basically the allocations
being mathematically driven,
rory-liebhart_1_07-15-20 (19:03):
Right.
ed--hizzz-_1_07-15-20 (19:03):
passively managed, and it's just going to
kind of take you to a 2040target retirement date.
That's my 2040 target retirementfund.
It's actively managed based uponkind, risk, return, and
timelines to be able tooptimize.
I, I get very concerned aroundthe, typical.
(19:24):
I don't even wanna say it's atypical American.
I think as a typical personwants to go, I, I, I know better
when they don't.
an investor when you're not, andI can make a bazillion dollars
and therefore I'm gonna rollthe, I'm putting it all on, you
know, double zero black and putall the chips there and it's
gonna hit maybe and it doesn't.
(19:46):
And so with retirement funds,whether it's IRAs, 4 0 1 Ks.
Pension plans.
The thing is that, like anemployer pension plan, a defined
benefit plan is governed by thegovernment as to like the
rory-liebhart_1_07-15- (19:59):
Larissa.
ed--hizzz-_1_07-15-2025_160 (20:00):
how diversified it has to be, how
liquid it has to be.
What, how the, the actuarialassumptions behind the, the, and
they have to time their,basically, time their, uh,
their, payments such that it'sliquid enough to be able to meet
pension obligation.
You don't have that in your401k.
rory-liebhart_1_07-15-2025_ (20:17):
no.
ed--hizzz-_1_07-15-2025_1604 (20:17):
So I'm like, okay, if you're gonna
do this, if you're gonna open upthis a the asset classes, then
you've gotta start putting someof those same restrictions.
'cause some of the biggestinvestors in private equity are
pension funds, but they have allthese other regulations around
'em to protect thebeneficiaries.
I think if you're gonna do thatin 401k, it goes the same
(20:38):
direction where you go Look, thebeneficiary of a pension defined
benefit pension doesn't get tochoose their investments.
you don't either.
It's just a self self-fundedplan.
emily-sander_1_07-15-2025_1 (20:47):
How would this affect the other LPs,
the traditional LPs that existtoday?
ed--hizzz-_1_07-15-2025_1604 (20:54):
I, I think it makes, here's where I
think it makes it worse.
There's already almost too muchmoney chasing too few deals in
private equity
emily-sander_1_07-15-2025_ (21:04):
Hmm.
ed--hizzz-_1_07-15-2025_160 (21:04):
now you're gonna make more money.
Chase too few deals in privateequity'cause there's gonna be an
influx of capital, which isgonna drive prices up'cause
you've got supply and demand.
So it'll drive prices up on the,on the buy side, you're gonna
have, you may have some goodopportunities on the sell side
for the existing investors, butover the long haul, you know,
(21:26):
with additional funding, it'sgonna drive some of the prices
down.
One of the biggest advantage ofprivate equity the fact that
they go find stuff that youcan't find on the markets.
know, so it's,
rory-liebhart_1_07-15- (21:37):
exactly.
Yeah.
ed--hizzz-_1_07-15-2025_160 (21:38):
and now all of a sudden you're
putting all that in play for allthe
emily-sander_1_07-15-2025 (21:41):
Yeah.
Do, do either of, you know, fromjust a regulation or policy
perspective, is this liketantamount, is this like normal
course of business?
This is how.
Things get teed up and then theyget discarded, or this one gets
teed up like this and it goesthrough a process, or is this
kind of a curve ball?
What?
What does that look like?
rory-liebhart_1_07-15-2025_ (22:01):
Oh, this, this is, this is, this is
normal stuff.
Like I, I, I'm, you know, wasactually surprised to see this
pop up because I, I really,know, had figured it had been
discussed and, you know,analyzed and such up to this
point.
So just when, just reallyearlier this month is really
when the scuttlebutt startedbubbling up.
Uh, no, let's stop this type ofstuff's.
(22:23):
You know, um, really common.
I mean, I'm sure even a fewyears ago, people were trying to
talk about how do we put NFTinvestment opportunities into,
you know, managed,self-directed, you know, and
managed retirement account craplike that.
It's just, there's always,there's, let's just say there's
always there, um, you know,allocations of capital.
(22:46):
Available and there's alwayssomebody trying to match that
with some other offering ofsorts, and there's a lot of
innovation that comes with that.
But there's also a lot of redtape you have to wade through
and make sure it's done.
You know, uh, without damaging,damaging people involved out the
gate.
And so, yeah, I think crypto'sgonna be a big one that's kind
(23:08):
of here to stay.
I think was sort of a flash inthe pan.
I mean, REITs at one point, I'msure went through this kind of
scrutiny and things like that.
Oh, you're, you're, how are yougoing to, you know, allow
somebody to invest in.
As Ed said, an apartment complexin Tacoma, Washington.
Uh, you know, you figure out away to make it liquid and you
make it, uh, you know, havecertain SEC oversight and things
(23:29):
like that.
You know, I, I, I imagine myprediction is, you know, some
version of this will, will makeits way into, into the 401k, you
know?
Uh, yeah, yeah, I do.
I think so.
emily-sander_1_07-15-2025_1 (23:42):
So, okay, so like the cynical part
of me goes from what you've alljust said, is there a person or
like a small group of people atone big PE firm who's like, you
know what, we could bring in somuch more money if we did this.
Why don't we pitch this asfinancial democratization for
(24:04):
the people?
But really we're gonna get ashit ton of money into our firm.
The cynical side, is that
rory-liebhart_1_07-15-202 (24:13):
Well, I think
emily-sander_1_07-15-2025_160 (24:13):
a thing?
ed--hizzz-_1_07-15-2025_160 (24:13):
One of my good friends.
rory-liebhart_1_07-15-2025_1 (24:15):
is looking for a way to access
retail investors.
That's, that's, that's alwaysthe case.
So yeah, you might be right.
There's somebody figuring out acurrent angle on it.
Maybe, maybe with the, thetailwinds of the current
administration having supportedthis for the last four or five
years, now is the time to reallymake a thing of it, you know?
ed--hizzz-_1_07-15-2025_1 (24:35):
Yeah, I was gonna say, as one of my
good friends, uh, Cassandra,Aurora would say, choose you can
have both.
rory-liebhart_1_07-15- (24:44):
Exactly.
ed--hizzz-_1_07-15-2025_16 (24:45):
Your cynicism is absolutely accurate.
but it's, it's not necessarily abad answer.
yes, it's, we can make a ton ofmoney and we've made this
available for democratization.
It's why choose, we could putboth out there and that's the
American way.
That's capitalism.
rory-liebhart_1_07-15-2025_ (25:05):
is.
ed--hizzz-_1_07-15-2025 (25:05):
That's,
rory-liebhart_1_07-15-2025_ (25:06):
is.
ed--hizzz-_1_07-15-2025_ (25:06):
that's capitalism.
emily-sander_1_07-15-2025_16 (25:07):
It too.
rory-liebhart_1_07-15- (25:08):
stopping that mentality.
It'll never change.
Humans are humans and Yeah, Imean, and, and it's like we
legislate as we go and we, youknow, put forth regulations as
we go and our best, but there'salways gonna be, you know, ways
to.
Yeah.
What ways for people to, to outhow to make more money in sooner
(25:28):
off of other people, so
ed--hizzz-_1_07-15-2025_1 (25:30):
I'll, I'll give a, I'll give it a,
I'll give a example because Ilived the example at, uh,
beautiful accredited homelenders.
rory-liebhart_1_07-15-2025 (25:37):
yes.
ed--hizzz-_1_07-15-2025_16 (25:37):
back in, back in 2000, in the early
two thousands during, in thelate 1990s during the Clinton
administration, they opened up,they essentially said exactly
what you just said, em.
with mortgages, we're gonnademocratize the mortgage
industry, so we're gonna
emily-sander_1_07-15-2025_16 (25:52):
Oh yeah.
ed--hizzz-_1_07-15-2025_1 (25:53):
We're gonna encourage investment into
under, under invested areas.
We're gonna reduce the, theunderwriting criteria so that
more people could buy their ownhomes.
We're gonna really create thisbig, this big real estate, um,
capability for people to buyhomes and become, you know,
permanent members of, of thatneighborhood.
(26:15):
And, you know, open up homeownership to whole groups of
folks that never had it before.
And there was not sufficientregulation.
And so as a result, what you hadwas basically government
incentives to go do thesethings.
People made a ton of money.
rory-liebhart_1_07-15-2025_1 (26:30):
Oh yeah.
ed--hizzz-_1_07-15-2025_160 (26:30):
And then you had a bunch of folks
go, oh, well they could make aton of money.
Let's, you know, and they tookthe guardrails off, let's kind
of spread the, spread the wholething out.
And but the assumption from theborrower, because you're signing
this form and this form and regthis and this that, and oh, the
government's said this is allokay, so it's fine.
And then it blows up, you know,10 years later and they're like,
(26:52):
well, you know, this is, Ididn't understand this.
Could have the same effect
rory-liebhart_1_07-15-202 (26:56):
Yeah.
I
emily-sander_1_07-15-2025_ (26:57):
Hmm.
rory-liebhart_1_07-15-202 (26:58):
it's, it's a
ed--hizzz-_1_07-15-2025_1604 (26:58):
on retirement.
rory-liebhart_1_07-15- (27:00):
there's, there's not, you know, unless
there's, uh, know, governmentalin intervention, it's always
gonna be, someone's gonna winmore.
And somebody's gonna lose more.
It's, you know, it's, that's theway it is.
So you just try to mitigate thaton both sides with risk
management.
So, you know, think there'sgonna always be a way to, um,
(27:24):
innovate, uh, ways to, you know,make more money through
investment, professionalinvestment strategies, but it's
gonna come at the cost of.
Some someone or some cruisegroup or some counterparty.
That's that's for sure.
So,
ed--hizzz-_1_07-15-2025_160 (27:39):
Now if you.
rory-liebhart_1_07-1 (27:39):
government ends up stepping in is sort of
buffering that to some
ed--hizzz-_1_07-15-2025_1 (27:42):
Well, and the, the other side of that
is the government, whether itwas a mortgage business or
whether it's in retirementaccounts, the, the moral hazard
is the government backstops allthis stuff with ERISA in that
case, or with Freddie Fanny andthe, you know, the,
rory-liebhart_1_07-15-20 (28:01):
point.
ed--hizzz-_1_07-15-2025_160 (28:02):
and so what you've got is there's no
incentive.
For anybody to mitigate theirrisk because they know if it
blows up spectacularly, thegovernment will bail their ass
out.
rory-liebhart_1_07-15-2025_1 (28:11):
It ain't
ed--hizzz-_1_07-15-2025_160 (28:11):
And so that's where, that's where
I'm like, look, on the currentstructure for private equity, if
it blows up, the government'snot backstopping any of that,
rory-liebhart_1_07-15-202 (28:21):
Yeah,
ed--hizzz-_1_07-15-2025 (28:21):
you're, you're just
rory-liebhart_1_07-15-2025 (28:23):
that
ed--hizzz-_1_07-15-2025_1604 (28:23):
in the water
rory-liebhart_1_07-15-2025 (28:23):
Like
ed--hizzz-_1_07-15-2025_160 (28:24):
You lose your money.
You're going
rory-liebhart_1_07-15-2025_1 (28:25):
in the territory that the big banks
were in.
Like they're, they're
ed--hizzz-_1_07-15-2025_160 (28:28):
too big to fail.
rory-liebhart_1_07-15-2025_16 (28:30):
I mean, that's the world we're in
now.
It's not just the banking sectorthat is too big to fail.
It's the whole, economic sector,whole financial sector.
It's, it's a, it's, it'sactually, it's interesting how
different a world it is now thanit was in 2010
ed--hizzz-_1_07-15-2025_160 (28:44):
And I'll just let the folks
listening know, we didn't planthis part, but we're headed
down.
This is kind of down a rabbithole for another pod.
Like has equity become a sectorthat's too big to take?
rory-liebhart_1_07-15-20 (28:56):
that's a great one.
Yeah, we'll
emily-sander_1_07-15-2025_16 (28:58):
If you were in,
rory-liebhart_1_07-15-20 (28:59):
That's gonna be a
emily-sander_1_07-15-2025_16 (29:00):
if you were, let's, let's say
hypothetical, you guys were inthe government and you could
make whatever regulations aroundthis, this had to go through,
you had to introduce privateequity.
But you could structure it andputting any regulations you
wanted on it.
What is the most elegant way todo that?
ed--hizzz-_1_07-15-2025_16043 (29:18):
I gave, so I'm from the
government.
I'm here to help.
That's my favorite.
That goes with my Reagan Bush 8484 bumper sticker on my new car.
uh,
rory-liebhart_1_07-15-202 (29:31):
well, the original,
ed--hizzz-_1_07-15-2025_1604 (29:32):
I, I, I kind of laid it out.
The, what I would do is go,look, you, you've gotta, it,
it's gotta be part of aportfolio where the only thing
you can have is a, is a targetretirement, target date
retirement fund.
And, you know, it's, it's inthere.
So it's almost like a managedportfolio in a case that you
know, which is part of theoverarching current.
Proposal except that it's evenmore, it's less, it's, it's more
(29:58):
managed and the, the.
The person who's making theinvestment, the employee making
the investment, really has nocontrol.
And then it becomes a, you can'thave too much concentration in
any one thing.
You've got the, you know, thetrustees have have restrictions,
so I, you know, a typicalpension fund won't have more
than 10% or so in alternativeinvestments, maybe 15%.
And I think you put those samepension fund, pension fund
(30:21):
requirements.
On these managed, managedretirement funds that are, you
know, target date retirementfunds and sitting in 4 0 1 Ks,
and that probably would get mecomfortable enough to, not
panic, but I still hate themoral hazard of ERISA backstop
and all this stuff.
rory-liebhart_1_07-15-202 (30:37):
Yeah, completely agree.
Yeah, I don't have much to addto that.
I think, I mean, the couplethings I do, I do like about,
you know, maybe where it's kindof sitting at right now is the
thought that, know, it would be,uh, specific to managed accounts
and also, uh, sponsors wouldhave to opt in, you know, so a
trustee representing the companywould really have to think about
(30:59):
how much liability they want totake on as that trustee to
sponsor a plan.
That's got, you know, a privateequity, uh, you know, kind of
unfiltered private equityallocation potential to it, and
not the least of which is peopleare gonna just whether or not
it's, uh, you know, withinbounds or not.
You know, if, if, like, youknow, if, if you know of your
(31:21):
staff, you know, madeinvestments through their 4 0 1
in a big, big, uh, allocation ofprivate equity and just.
to that sector having issues orsomething like that, lose a
bunch of money, you're gonnahave a bunch of pissed off
employees that you're gonna haveto deal with.
And, you know,
emily-sander_1_07-15-2025_1 (31:36):
Oh.
rory-liebhart_1_07-15-202 (31:36):
just, that's just part of it.
Where, index funds that are, youknow, publicly traded and stuff,
that doesn't create that muchwild fluctuation that's away
from the general macroeconomic
emily-sander_1_07-15-2025_ (31:47):
What warning labels would you give
people?
Like if you're from thegovernment, you're here to help,
like, hey, sudden drops inliquidity may occur.
Just know that going into this,this thing.
rory-liebhart_1_07-15-202 (31:58):
Yeah,
ed--hizzz-_1_07-15-2025_160 (31:58):
Um,
rory-liebhart_1_07-15-20 (31:59):
point.
Yeah, I mean, a
ed--hizzz-_1_07-15-202 (32:00):
there's.
rory-liebhart_1_07-15-2025_1 (32:01):
on what it really is, like use of
leverage.
I don't think people think aboutthat aspect of it too much.
They just oh, private equitymeans higher return because you
know it's an alternativeinvestment class.
Well, what generates thosereturns is a use of leverage for
the most part.
ed--hizzz-_1_07-15-2025_1604 (32:15):
So I'll, I'll go to the, to the,
California has a, has aregulation which basically says
if something can cause birthdefects or cancer, you have to
label it as it can cause birthdefects or cancer.
And what ends up happening iseverything is labeled.
Because if you don't know, youhave to label it.
And so you know everything islabeled, so then no one pays
(32:37):
attention.
When it comes to investments,every stock, every mutual fund,
every has a list of list ofrisks and a prospectus, or in
the S one that basically says,here's all the, and no one reads
it, and so it's you.
You come out.
rory-liebhart_1_07-15-2025 (32:52):
Also true.
ed--hizzz-_1_07-15-2025_160 (32:53):
You could come out and you could
come out with the, and here's,you know, it, it's, it's the,
the way that these, thegovernment, and again, I, I tend
to be very libertarian in myapproach anyway, but the
government puts theseregulations out and that's why I
said that people get a falsesense of security.
'cause they sign these thingssaying, you know, according to
Reg fd I did at, you know, I,all this stuff was disclosed.
(33:14):
I didn't really read it.
And it sounds like one of thosestupid, like ozempic commercials
where, you know, this may cause,you know, hair to grow outta
your nose and you know, yourears are gonna pointy like an
elf and all this other stuff.
And they say so fast, you know,during the TV ad, you're gonna
get that on, you get that on theinvestment side too, and it's
all worthless, useless.
(33:35):
Cover your ass stuff for thetrustee.
That's, that's all it, that'sall the good it serves.
rory-liebhart_1_07-15-2025_ (33:40):
All right.
Ed's now officially beengovernment in the high
regulation.
No, I'm kidding.
emily-sander_1_07-15-2025 (33:49):
What, what?
Guys predictions for this.
Would you say this goes througheventually or no?
And if so, timing?
How soon does this go through?
rory-liebhart_1_07-15-202 (33:58):
shoot the clip, the clip that things
are getting implemented now.
I mean, I will say that aboutthe current administration, they
don't, you know, things arehappening fast.
I'd say, you know, soon, soonerrather than later.
Perhaps like within the next 12months, I would think.
ed--hizzz-_1_07-15-2025_1 (34:12):
Yeah, it'll happen before the next
Congress.
If it happens, it'll happenbefore the next congressional
election.
rory-liebhart_1_07-15 (34:17):
midterms.
Yeah.
ed--hizzz-_1_07-15-2025_16 (34:18):
And.
Although this could beregulatory, so it may be able to
buy, it may, they may be able touse administrative procedures
Act, throw it into regulation,not have to run it as
legislation, you know, so it, itmay, may be longer than that,
but I would generally say, look,Liz, Liz, Warren, and I, I'm
gonna actually go into a story.
(34:40):
I've got a, I've got a storyfor, for,
emily-sander_1_07-15-2025_160 (34:42):
I with her.
ed--hizzz-_1_07-15-2025_160 (34:45):
so, so I, I would say that.
Her concerns are, are concernsthat are going to be shared by
many of her colleagues.
So, you know, Bernie's gonnafeel the same way, and so and
so, it wouldn't surprise me ifyou see it.
The composition and the, theSenate and Congress are so
evenly divided now that thatcomposition is likely to swing
in midterms.
(35:05):
It normally goes against theparty in power.
And so as a result, I wouldexpect if it doesn't happen by
then, it's not gonna happen.
Now I'm gonna, I'm gonna throwin a, a story'cause Rory might
remember this.
So back when the BankruptcyReform Act was passing
rory-liebhart_1_07-15-2025 (35:21):
2005 baby.
ed--hizzz-_1_07-15-2025_16 (35:22):
back in 2005, our general counsel
rory-liebhart_1_07-15-2 (35:26):
Mm-hmm.
ed--hizzz-_1_07-15-2025_1604 (35:26):
at Beline Lobbed in a call to
Professor Elizabeth Warren totry and get her hired to do a
consulting gig for us tounderstand what the impacts of
the change of the regulationswere gonna be.
With the new Bankruptcy ReformAct
rory-liebhart_1_07-15- (35:46):
amazing.
ed--hizzz-_1_07-15-2025_160 (35:47):
and Elizabeth Warren asked what type
of business we were in and wesaid, well, we're a debt buyer
and we buy bankrupt consumerdebt.
And she told, she told ourgeneral counsel, who was a
Harvard law grad who kind ofknew he, she basically told him
to go pound sand and there wasno way she was, and that
companies like ours should,should not exist.
And she hung up on'em on thephone.
rory-liebhart_1_07-15-2025_16 (36:09):
I did not know that.
What a story.
ed--hizzz-_1_07-15-2025_1 (36:11):
Yeah.
And she wanted, initially it waslike a$800 an hour or a thousand
dollars an hour to do theconsulting work.
And this was like in 2005,
rory-liebhart_1_07-15-202 (36:20):
yeah.
emily-sander_1_07-15-2025_ (36:20):
Wow.
ed--hizzz-_1_07-15-2025_1604 (36:21):
so 20 years ago.
rory-liebhart_1_07- (36:22):
Incredible.
ed--hizzz-_1_07-15-202 (36:23):
exposure to Elizabeth Warren.
'cause she was a bankruptcyprofessor, a law professor at,
uh,
rory-liebhart_1_07-15-202 (36:28):
that.
ed--hizzz-_1_07-15-2025_1 (36:28):
yeah.
At Harvard?
emily-sander_1_07-15-2025_1 (36:30):
Did you ever speak with her or was
that just through your Okay.
ed--hizzz-_1_07-15-2025_1604 (36:33):
it was, uh, it was our GC did all
the, did all the speaking.
emily-sander_1_07-15-2025_1 (36:37):
She was like, you can go fly a kite
is what you can do.
And then decades later, you'reBFFs.
ed--hizzz-_1_07-15-2025_1 (36:45):
Yeah.
We're BFFs.
I call her Liz now because I.
rory-liebhart_1_07-15-2025 (36:48):
what I'll say is the, the, the sort
of the, I think it's right theway that, know, she is
approaching this, I mean, she'sasking the right questions.
I, I, I read the.
The letter that she wrote toEmpower, and, you know, they've
yet empower being the companywith a ton of, uh, records on
retirement plans and things likethat.
It was kind of like trying tospearhead this from the other
(37:10):
side.
You know, the, the questionsare, you know, to the point
logical, basically asked in themanner of like, how are you
gonna protect the average Joe,uh, here through this?
What is your, in other words,what's your, what's your, what's
your angle here?
Dude, you know, like, what areyou trying to accomplish here?
is the, is is not the privateequity current, uh, market and,
(37:32):
you know, uh, capitalization andall that stuff.
Good enough.
Like what's the deal?
Uh, anyway, uh, so we'll seethis unfold.
It's been, it's kind of a funone to follow, honestly.
emily-sander_1_07-15-2025_ (37:42):
Exit question for you two.
What sounds riskier?
Pri putting private equity in 40 1 Ks or letting chat GBT pick
your portfolio.
ed--hizzz-_1_07-15-2025_16 (37:55):
Wow.
rory-liebhart_1_07-15-20 (37:56):
What's risker?
Hmm?
ed--hizzz-_1_07-15-2025_160 (37:59):
You know, I'm actually gonna go with
the putting 4 0 1 Ks in theportfolio or putting, putting,
putting the, uh, private equityin a 401k because,
rory-liebhart_1_07-15-202 (38:07):
Okay.
ed--hizzz-_1_07-15-2025_1 (38:07):
yeah, because GPT is gonna, is gonna
analyze all the informationthat's out there, is going to
hoovered up a bunch of, a bunchof data is gonna be applying
things like risk premium to aportfolio.
And if you ask the questionright, you're gonna actually
probably get a well diversifiedportfolio that you should be
investing in versus.
You know, private equity in your401k, you know, that's relying
(38:30):
on me to make that choice for my401k, and I'm, and I'm an idiot.
rory-liebhart_1_07-15-20 (38:35):
That's a good answer.
ed--hizzz-_1_07-15-2025_ (38:37):
wisdom of crowds is, is going to win.
emily-sander_1_07-15-2025_1 (38:40):
You need a good prompt for that?
You'd want a good prompt forthat.
Chad, GBT.
ed--hizzz-_1_07-15-2025_1604 (38:44):
a, I'm a fricking problem engineer.
That's, that's what I am.
rory-liebhart_1_07-15-202 (38:48):
Yeah, I, I, I'd say, I'll just take
the other side of the coin justfor the heck of it, only to say
that, you know.
I think there will be moreinherent, uh, built-in controls
if it, if it goes into playwhere you can, you know, pick
private
emily-sander_1_07-15-2025_ (39:01):
Hmm.
rory-liebhart_1_07-15-202 (39:02):
funds outta your 401k.
It, it just, it's not gonna passwithout control and chat.
BD can hallucinate and, youknow, all this, all these things
and you know, you just neverknow, even though it does have
all of the internet that to drawon.
So, yeah, I don't know.
Tough, tough call.
Probably ultimately agree withthe chat GPT answer, but I
needed to put something outthere for the other side.
emily-sander_1_07-15-2025_1 (39:22):
All right.
We got both sides of it now.
Thank you, Rory.
Thank you, ed.
rory-liebhart_1_07-15-2025 (39:25):
you.
Good to see you.
Yeah, we'll talk again soon.
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