Why Private Equity Needs a New Product-Market Fit
Last spring, the Department of Labor (DOL) asked Americans what they thought of letting private equity into their 401(k)s. Roughly 47,000 comments came in.
Then Bloomberg started making phone calls. As it turns out, a large share of the comments supporting the rule, the news service reported in August, followed five near-identical templates, many with no signature, city, or email address. When reporters tried to reach people whose names were attached, some said they never wrote in, and in a few cases the person had died before the rule was even proposed. None of the trade groups and advocacy organizations Bloomberg contacted claimed the templates as their own. In September, three Democratic lawmakers asked the Justice Department and the FBI to open a criminal investigation. The DOL’s stated position is that it weighs the substance of a comment, not who sent it.
Setting aside the apparent accusation of foul play by some in the media and political arenas (it is not illegal to submit anonymous comments, to my knowledge, though filing under someone else’s name is certainly a matter for investigation), the story still raises a question every GP weighing a retail fundraising strategy should ask: when someone says “the public” is demanding access to private equity, who exactly are they talking about?
The fight over retail access to PE has split into two predictable camps.
The first calls it “democratization.” Pensions and endowments have owned private equity for decades, the argument goes, so why shouldn’t a nurse with a 401(k) get a shot at the same returns? That is the logic of President Trump’s August 2025 executive order, of SEC Chair Paul Atkins, and of the DOL’s proposed safe harbor, which gives employers who add alternatives a process to follow and protection from lawsuits. It is also the pitch Apollo’s Marc Rowan has made when pointing to the $12 trillion sitting in 401(k) plans.
The second camp calls it “a lifeline.” Private equity fundraising has fallen for eight straight quarters through Q1 2026. Bain reports that distributions have stayed below 15% of net asset value for four years running, a record, with 32,000 unsold companies worth $3.8 trillion still on the shelf. Senators Warren and Sanders, 23 state attorneys general, and academic critics see an industry hunting for new buyers now that its old ones have gone quiet. Even inside the industry the split is real. Apollo co-founder Josh Harris has said the push to sell private assets to retail investors is “not going to end well,” and Olympus Partners’ Robert Morris has warned it “bodes to be the successor to the 2008 mortgage crisis.”
The truth is that it is not a binary question about retail access, but rather which part of “the public” gains access, and, importantly, what would it take for those folks who do to hold that product for the required period.
Here is the part that gets lost. Private equity does not simply earn returns. It earns them from investors who can do three things at once: (1) tolerate illiquidity, (2) absorb losses, and (3) wait five to seven years without flinching. Even institutions are running short of that patience. Bain’s analysis of buyout vintages finds returns start to stagnate around year seven and decline thereafter, and that the average exit now takes about seven years.
Now consider the new buyer. A 2025 Schroders survey found that 45% of retirement plan participants would invest in private assets if offered. Only 12% called themselves very knowledgeable about them, 53% said they sound risky, and about 23% would put less than a tenth of their savings into them. Wanting access and being able to hold are two different things, and the policy debate treats them as one.
My read is that if retail access arrives mostly by default, through target-date funds, the product being sold is quarterly liquidity layered on assets that take about seven years to sell, offered to people who have never lived through a gate. That is not the same asset class institutions buy into. It is a different product bearing the same nametag. Early signals point that way: earlier this year, semi-liquid private credit funds, PE’s closest cousin, drew a surge of redemption requests. While the pattern did not travel to PE, the evidence suggests that ubiquity can quietly dilute the premium that patient capital was supposed to earn. And that premium is already under pressure.
I learned about retail investors’ appetite for new products by talking to (a lot of) them. Back in 2019, I was working with several teams at TD Ameritrade’s growth incubator (Discotech). One growth area we were investigating was alternative assets as a new retail investor category. What came out of this exploration was a marketplace for startup investment opportunities, which launched in mid-2020 and was open to accredited investors thanks to the JOBS Act.
One key insight we uncovered drove the development of this new offering: “the public” was far from monolithic. Demand came largely from a specific cohort: Millennials in the FIRE movement (short for Financial Independence, Retire Early). They were financially fluent enough to know what they were asking for and had the means to act on it. Their interest in alternative products was very broad, from the more mundane crypto and real estate projects to the more esoteric third-party litigation funding. In the middle of that range sat private equity. Balancing our customers’ top interests with what was feasible in the near term, we went with private equity’s glitzier sibling (venture capital) first, mainly due to overwhelming appetite for early access to pre-IPO startups through crowdfunding and secondaries.
More importantly, this cohort also had habits that should make any GP pause. The FIRE gospel is low-cost index funds, which means these were people who read the fee table carefully. After Schwab acquired TD Ameritrade, all of Discotech’s new products were absorbed by the core business, but what this work illustrated to me was that retail appetite for alternatives was real, and that it belonged to a particular kind of investor, not to everyone.
For GPs, the uncomfortable implication is that you may be about to launch a product that was never designed for that new kind of investor. Institutional LPs came pre-qualified: consultants, side letters, ten-year commitments, a relationship you could call. A retail investor arrives with none of that. The task shifts from raising money to finding product-market fit, in the customer-discovery sense Steve Blank and Clay Christensen taught a generation of founders (proverbially, what are you hiring this milkshake to do for you?).
For the FIRE-style cohort, the answer to that question might point to a lockup matched to the seven-year cycle instead of a quarterly promise, a fee schedule that survives a comparison with an index fund (per iCapital, registered private equity funds-of-funds run roughly 2.5% to 4% of assets a year all-in), and allocation caps that keep a bad outcome survivable. For the 88% who don’t call themselves very knowledgeable, it might mean an advisor who is paid to say, “this is not for you.”
Moreover, refining that offering to fit this new customer segment demands a regimented process. For private equity to appeal to retail investors, the original product needs to be redesigned, or at the very least repackaged. Oh, and by the way, asking retail investors what they want is only part one. In-market testing is the crucial part two that establishes evidence of real customer demand. Plus, designing market tests is both an art and a science. Not exactly part of a professional GP’s job description.
Whether or not the roughly 12,000 supportive comments the DOL received came from real people, a comment file cannot tell you who your retail customer is. So before sizing a retail raise, ask three questions:
Can you describe your retail customer in one sentence without using the word “everyone”?
What must be true for them in year three? and
What happens to your portfolio if a tenth of them ask for their money back in year two?
The answers to these questions will make (or break) the PE product offered to retail investors. And if you can’t answer them, don’t hire a distributor just yet.
