Washington just proposed opening your 401(k) to private equity and private credit. Supporters say it will give ordinary workers access to returns that have long been reserved for the wealthy. Critics say it will expose retirement savers to opaque, illiquid, and overvalued assets at the worst possible moment. Both sides have a point. This piece tries to lay out what each side gets right, what each side omits, and what you would need to know to make an informed decision if these options show up in your retirement plan.

 HOW WE GOT HERE

The private credit market grew from a niche corner of finance into a $1.8 trillion industry over the past decade, fueled by low interest rates, a shrinking universe of public companies, and banks retreating from leveraged lending after post-2008 regulation. Firms like Apollo, Blackstone, Ares, and Blue Owl stepped into the gap, making high-interest loans to private equity-backed companies — many of them software businesses — and offering wealthy individuals access to yields unavailable in public markets.

For a long time, it worked well. Private equity returned 15.1% annually on average between 1984 and 2024, versus 11.7% for the S&P 500. University endowments like Harvard's put 77% of their portfolios into private and alternative investments. Government pension funds allocated roughly a third of their assets to alternatives. The returns were real, and the institutions that earned them were sophisticated, long-term investors with professional staff and full transparency into what they owned.

That context matters for everything that follows.