“AI” is Coming for Your 401(k)
BY: ETHAN LOHR, CFP® — November 20, 2025
There’s roughly $10 trillion sitting in the 401(k) accounts of American workers—and a massive asset class wants a slice of it. Not artificial intelligence, but “AI” in the investment world: Alternative Investments.
This broad category includes private equity, private debt, infrastructure, commercial real estate along with others we won’t get into here. Historically, alternatives have been reserved for the big players—public pensions, endowments, foundations, and family offices—institutions with the expertise (and patience) to navigate the complexity, illiquidity, and long time horizons these investments demand.
But that’s changing.
In this piece, we’ll unpack what the Alternatives asset class actually is, why the industry is pushing so hard to bring these investments into 401(k)s, and—most importantly—what that means for you and your retirement investing.
Private Equity (PE)
The most commonly referenced alternative asset class is private equity—funds that invest in hundreds or even thousands of privately held companies. Elon Musk’s SpaceX is a well-known example of a portfolio company found inside certain private-equity or venture funds. PE funds can have very different mandates depending on the stage and strategy.
Venture Capital (VC) targets young, early-stage companies—often unprofitable but high-growth potential.
Growth Equity focuses on companies that are more established but still expanding rapidly.
Leveraged Buyouts (LBOs) involve acquiring mature businesses, improving operations, and eventually selling them for a profit.
Portfolio Benefit: Return Enhancer
Private Debt
Next is private debt, a sector that pools investor capital to lend directly to small and mid-sized companies. These borrowers are often underserved by traditional banks or prefer not to raise capital through equity. Instead of issuing stock, they take loans from private-debt funds that can move faster and structure more customized financing.
Example: A manufacturing firm with steady cash flow may borrow from a private-credit fund to expand a production line rather than undergo the cost and complexity of going public or giving up ownership to a private-equity investor.
Portfolio Benefit: Income, Return Enhancer
Infrastructure
Infrastructure investing spans everything from toll roads and bridges to wind farms, fiber-optic networks, and data centers. These assets tend to be large, capital-intensive, and essential to economic function, which is why investors pursue them for stable income and long-term appreciation. Funds in this category typically focus on owning and operating the physical backbone of modern society.
Example: A fund might acquire a portfolio of solar farms or partner with a municipality to upgrade and operate a toll road.
Portfolio Benefit: Income, Inflation Protection, Return Enhancer
Commercial Real Estate
Commercial Real Estate is technically one of the oldest alternative investment classes—yet it’s getting renewed attention as alternatives expand more broadly. This category spans commercial office buildings, apartments, industrial warehouses, medical facilities, and more. While investors have long accessed real estate through REITs or direct ownership, private real-estate funds offer another avenue for diversified exposure outside the public markets.
Example: An institutional real-estate fund purchasing a portfolio of logistics warehouses leased to e-commerce companies.
Portfolio Benefit: Diversifier, Income, Inflation Protection, Return Enhancer
Why Are These Investments So Attractive?
Alternative investments appeal to institutions and high-net-worth investors for a few reasons:
Potential for Higher Returns
Because alternatives often invest in niche opportunities, early-stage companies, private markets, or distressed assets, they may offer higher expected returns than public stocks and bonds—though not without higher risk.
Low Correlation to Public Markets
Another major draw is that their returns tend to be less correlated with public markets. A bad week for the S&P 500—or a sudden drop in Nvidia—doesn’t always show up in the valuations of private companies, private loans, or infrastructure assets.
This does not mean they are immune to downturns, but they can behave differently, which can help diversify a portfolio.
Access to Unique Opportunities
Some companies or projects simply never go public. Private markets allow investors to access innovation, specialized credit, or large-scale assets before (or instead of) the public markets.
The Tradeoff: Fees and Liquidity
These benefits don’t come free:
Alternatives generally come with higher fees, because researching, acquiring, and managing private investments is labor-intensive.
They are far less liquid than public investments. You can’t press "sell" on your phone or desktop expect next-day cash.
Investment time horizon can run 5–12 years or more, depending on the strategy. Meaning, don't expect to start making serious money for a while.
This combination of potential upside and meaningful constraints is why alternatives historically lived inside the portfolios of investors who could afford long time horizons and limited liquidity.
Why Do Alternative-Investment Firms Want 401(k) Access?
It’s unlikely that firms are suddenly motivated by a desire to democratize wealth. The real reason is far simpler:
New money creates new liquidity.
When more investors — including everyday savers — can buy into private-market funds, those funds can:
Make more deals
Support ongoing portfolio companies
Pay out earlier-stage investors
Scale their investment platforms
In short, inflows create fuel for private-market activity. Is this good? It can be. But it can also become a mechanism to offload stale assets so earlier investors and fund managers can clean up old portfolios and move on. As with anything in the Alternatives world, diligence matters.
So What Should You Do?
Over the next year, we will likely see public/private blend funds marketed directly to everyday retirement savers. We’re already seeing major players collaborate—for example, Blackstone and Vanguard have begun developing hybrid structures designed for the 401(k) ecosystem.
It’s also highly likely that these private-market exposures will eventually find their way into target-date funds, the default investment option for many Americans.
This isn’t something you need to avoid outright. Alternatives can serve a legitimate purpose in a retirement portfolio. But here’s where caution is warranted:
Illiquidity is required for alternative investments to produce the returns they advertise.
Any structure that promises easy access inside your 401(k) must sacrifice something—usually by holding more cash on the sidelines to handle participant transfers, rollovers, and withdrawals.
More cash = lower efficiency and potentially lower returns than what the Alternatives category is known for.
In Summary
Watch out for “AI” whitewashing. When something is new, shiny, and less understood, it’s easy for investors to latch onto the label and assume everything under that umbrella works the same. But not all alternatives are created equal. Just because a fund is marketed as such doesn’t mean it shares the structure, rigor, or return profile of top-tier private equity, private credit, infrastructure, or real-estate strategies.
Select carefully. Ask questions. Understand what’s actually inside the offering—not just the label on the wrapper.
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