There is a growing push to open private markets, historically the exclusive domain of institutional investment, to retail investors. A major shift occurred on 7th August 2025, when U.S. President Donald Trump signed an Executive Order allowing 401(k)s and other workplace retirement plans to invest in alternative assets. This move aims to democratise access to higher-return investments and promote retirement outcomes. While the opportunity may be compelling, this introduces considerable risks, particularly for less experienced investors and the long-term stability of retirement savings.
This article will discuss the allure of private markets, its challenges, risks and insurance considerations.
Private markets include investments like private equity and private credit. Their appeal is twofold:
Superior returns: Private assets have historically outperformed public markets, often achieving superior risk-adjusted returns for investors. According to 2024 figures from S&P Capital IQ published by Apollo, upwards of 85% of U.S. companies with annual revenues of over USD 100 million are privately held, meaning retail investors are missing out on substantial growth opportunities.
Diversification: Private assets are less correlated with public markets and can offer more stable, inflation-protected returns that, unlike public assets, are not significantly impacted by geopolitical uncertainties and inflationary pressures.
As companies increasingly delay or skip initial public offerings, retail investors are excluded from major growth opportunities. Expanding access to private markets is seen to help everyday investors diversify and maximise returns, but this shift entails significant risks that require careful consideration.
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Private assets often require long lock-up periods (5-10 years) without the ability to be easily sold or rebalanced, which could prove challenging for retail investors who may need to amend their allocations or access funds due to life events or poor fund performance. Retail investors may not fully understand or tolerate this illiquidity, which could give rise to claims for unsuitable investment advice, mismanagement, or failure to disclose and manage liquidity risk.
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Private equity structures are complex, often involving leverage and unclear pricing. Valuations are based on internal models rather than market forces, which may mask underperformance or distort risk. This lack of clarity may make it challenges for retail investors to assess the true value and risk of investment. Errors in fund administrations, net asset value (NAV) misstatements, or failures to execute fund mechanics (e.g., redemptions) could expose asset managers to claims alleging negligence, errors or omissions in the course of their professional duties.
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Private investments typically carry higher fees than public ones. Retail investors lack the negotiating power of institutions, which can result in excessive fees that erode returns and compound over time – making them particularly significant in retirement savings accounts, where compounding is key. This could lead to legal challenges over hidden or unreasonable fees, which could result in costly class actions or regulatory investigations.
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Retail investors may lack the expertise to assess complex offerings, which raises concerns about their suitability. Poorly designed products pose the danger of steering retail investors into purchasing assets that they do not understand and do not align with their risk profile. This could lead to misaligned investments and claims of misrepresentation or breach of fiduciary / professional duty if risks are not adequately disclosed.
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The current framework remains underdeveloped. Current regulations (e.g., Accredited Investor Rule in the U.S., Professional Client Designation in the EU) restrict retail access to private markets. Initially designed for investor protection, these rules now act as barriers to entry – even amongst the financially educated individuals.
Recent Securities and Exchange Commission (SEC) guidance marks a shift: it no longer requires restrictions on investor eligibility (such as accredited investor status), minimum investment thresholds, or caps on exposure to private funds (e.g. the 15% limit) for registered closed-end funds investing in private funds.4 This reflects a recognition that wealth-based eligibility is outdated, especially with the rise of fintech platforms and more sophisticated retail investor profiles.
However, regulatory safeguards – such as audit standards, disclosure rules, and liquidity protections – remain weaker in private markets. Without robust data on retail investor behaviour and fund performance, regulators face challenges in the development of appropriate regulatory safeguards. The SEC’s guidance is a step forward, but it must be accompanied by stronger protections to avoid adverse outcomes.
Opening private markets to retail investment illustrates a significant shift in the investment landscape. Political and regulatory reforms, investor demand, and industry innovation are opening doors to asset classes that have historically been out of reach. This creates financial opportunities, but also regulatory challenges that require close collaboration amongst investors, market participants and regulators.
Comprehensive company insurances such as Directors’ & Officers’ Liability, Professional Indemnity / Errors & Omissions, and Crime can assist firms navigating this evolving environment by:
Fiduciary Liability Insurance considerations are also particularly relevant for retirement plan sponsors. While some firms may hesitate to adopt private market options, others may face pressure from employees. Insurers have already begun asking questions about current and future private fund investments and may consider raising premiums or retentions accordingly. Retirement plans could become potential plaintiffs against funds that encounter significant issues, especially in efforts to preempt participant lawsuits alleging imprudent investment encouragement.
As this space develops, it is important for firms to regularly review their insurance policies to ensure it reflects the current risk environment. If you would like help in mapping risks, modelling exposure, or reviewing your existing insurance programme, please get in touch with our team of specialists.
