As federal officials are expected to release a proposed rule that would address fiduciary duties when considering alternative investments in 401(k) plans, new research suggests the funds may not be as profitable as originally described.
An analysis from the Private Equity Stakeholder Project (PESP), a nonprofit organization, examines returns from the largest private equity “evergreen” funds, “often cited by the financial services industry as potential models for inclusion in 401(k) retirement plans,” PESP notes. The funds addressed in the report are managed by major players in private equity, including Apollo, Blackstone, KKR, Carlyle Group, and Ares Management.
The research claims that the funds, who are all marketed to retail investors, has severely underperformed in stock market indexes. In 2025, the median private equity evergreen fund returned “significantly less” compared to broad public stock market indexes, PESP reports. These returns were lower even before accounting for sales charges.
Funds managed by these private equity groups generated a median return of 11.20% last year—nearly half of the return made by MSCI ACWI index, a global equity fund, and also less than the 17.43% return generated by the S&P 500 index.
“These findings raise serious questions for retirement savers at a moment when federal regulators are considering changes that could open the door wider to private equity in 401(k)s,” said Jim Baker, executive director at PESP, in a statement. “Private equity firms are pitching these products as opportunities for everyday workers, but the data suggests that some of these funds have lagged the stock market while charging fees that can significantly erode retirement savings over time.”
The weak performance by the evergreen funds was not restricted to 2025, PESP reports. According to the findings, private equity evergreen funds delivered a median annualized return of 11.24% from 2023 to 2025, at just half the return of the S&P 500 index at 22.48% and still less than the MSCI ACWI index at 20.65% over the same period.
Other private equity funds also produced poor returns, PESP adds, with State Street’s private equity index generating a 7.08% return in 2024 compared to 25.02% delivered by the S&P 500 index. Further, as of the end of 2024, the S&P 500 index outperformed private equity on a one, three, five, and 10-year basis, PESP finds.
Dismal performance, high fees
PESP’s research contends that despite underperforming, private equity funds continue to charge high fees compared to public equity indexes. The median expense ratio for the fifteen private equity evergreen funds analyzed stood at 3.76%, whereas the Vanguard S&P 500 exchange-traded fund (ETF) charged a total expense ratio of 0.03%.
Other private equity evergreen funds, like the Pomona Investment Funds and Apollo Aligned Alternatives Fund, have also charged costly fees while delivering poor returns, the research claims.
Along with charging higher expense ratios, PESP notes that private equity groups have tacked on an additional 5% fee as a sales charge for brokers who sell the investments.
State retirement systems scaling back on private funds
While federal officials and industry groups push for alternative assets in the private 401(k) market, public retirement systems are stepping back.
According to the PESP analysis, Ohio, Maine, Nevada, Washington, Oregon, Texas, and Alaska have all limited their usage of private investments in public retirement plans.
One notable example is the Alaska Permanent Fund (APFC). The retirement system, which currently holds $85 billion in assets, is considering reducing their allocation to private equity from 18% to 15% following reported declining return expectations.
Other retirement plan systems, like Oregon’s state pension plan, Ohio’s Public Employees Retirement System, Nevada’s Public Employees Retirement System, Maine PERS, and the Texas Teachers Retirement System, have all made reductions to their private equity portfolios. Each system holds assets between $21 billion to as much as $225 billion.
“If public pension funds with deep resources and fiduciary oversight are deciding private equity no longer justifies the risk, that should give everyday 401(k) savers and regulators pause,” added Baker. “These are the same workers now being encouraged to take on higher-risk, higher-fee investments in their retirement accounts.”
Proposed rule to be released early Feb
The findings come as the defined contribution (DC) market prepares for a push towards alternative assets in 401(k) plans. A proposed rule made by the Employee Benefits Security Administration (EBSA) is expected to be released by Feb. 3. While specific details of the rule have not been released, it’s expected to closely follow President Trump’s supportive attitude of private equity in retirement plans.
Meanwhile, studies show a higher number of advisors and private market plan participants have expressed interest in alternative assets. A 2025 Cogent Syndicated report from Escalent noted that one in four DC plan advisors say they’re likely to recommend alternative investments within plan lineups, while one in 10 are already doing so.
Another study from Invesco, which gathered insights from 500 large-plan participants, found that 80% would feel comfortable with a managed service investing a portion, at 10% to 20%, of their retirement plan balances in alternative assets.