On August 7, 2025, the White House issued an Executive Order directing the Department of Labor (DOL)—in coordination with the SEC and Treasury—to review and potentially expand guidance around the use of alternative assets in 401(k) plans.
The move has generated significant industry buzz. While the headline makes it sound like these investments will be available to plan participants immediately, the reality is more measured—and much slower.
What the Executive Order Does (and Doesn’t Do)
The order instructs regulators to evaluate how fiduciaries can prudently offer diversified investment options that include asset classes such as private equity, private credit, real estate, commodities, or other “alternative” strategies.
It does not give participants direct access to private funds, hedge funds, or crypto wallets. Instead, any practical change is likely to take the form of packaged investment vehicles—mutual funds, collective investment trusts (CITs), or target-date funds with a small allocation to alternatives.
Timing: Months for Policy, Quarters for Implementation
The path from Executive Order to participant choice is a long one:
- Regulatory review – DOL, SEC, and Treasury must review current rules, consider safe harbor protections, and draft proposed guidance.
- Public comment – Any proposal will go through a comment period before final rules are issued.
- Industry buildout – Recordkeepers, custodians, and asset managers will need to develop compliant products, liquidity and valuation policies, disclosures, and operational workflows.
Even with an aggressive timetable, this is a process of months for policy followed by quarters for industry infrastructure—not weeks.
Practical Challenges for Advisors and Plan Fiduciaries
Even after regulators give the green light, there will be hurdles before alternatives appear in most 401(k) menus:
- Monitoring tools – Current fiduciary oversight systems are built for transparent, daily-priced mutual funds and ETFs. Alternative sleeves will require upgraded software to measure risk, liquidity, and valuation lag, and to benchmark performance against appropriate indices or peer groups.
- Transparency – Many alternatives have complex fee structures, infrequent pricing, and model-based valuations, making them harder to evaluate and compare.
- Track record – Fiduciaries will expect a sufficient live performance history before adding these funds to a core lineup or QDIA.
Suitability: Not All Participants Will Benefit Equally
Alternative investments can bring diversification benefits, but also come with higher fees, potential liquidity constraints, and wider dispersion of results. For most participants, any exposure would likely be modest and wrapped inside a broadly diversified fund with clear disclosures.
Performance & Risk Context
One way to frame the conversation is to compare the HFRI Fund-Weighted Composite Index (a broad measure of hedge fund performance) to the S&P 500 or Vanguard Total Stock Market Index or the Total US Stock Market over multiple timeframes.
Historically, hedge fund composites have shown lower volatility, just over ½, but also lower long-term annualized returns, less than ½, compared to broad U.S. equity benchmarks—especially during strong bull markets.
This is without accounting for the high internal expense ratios that would accompany a Hedge Fund investment.
Performance
| HFRI 500 Equity Hedge Index | S&P 500 Index (VOO) | Vanguard Total Stock Market Index | |
| 2023 | 7.10% | 26.32% | 26.01% |
| 2024 | 8.06% | 24.98% | 23.74% |
| 3-Yr Ann. Return | 6.27% | 17.06% | 16.38% |
| 5-Yr Ann. Return | 6.60% | 15.83% | 15.10% |
| 10-Yr Ann. Return | 5.25% | 13.62% | 12.97% |
Volatility
| HFRI 500 Equity Hedge Index | S&P 500 Index | Total U.S. Stock Market Index | |
| Annualized Standard Deviation | 8.12% | 14.95% | 15.46% |
Figures from 1/1/2005 through 7/31/2025. Official sources hedge Fund Research “HFR” and Morningstar.com. The HFRI 500 Equity Hedge Index is a global, equal-weighted index of the largest hedge funds that report to the HFR Database which are open to new investments and offer quarterly liquidity or better. The Equity Hedge funds that comprise the index are a subset of the HFRI 500 Fund Weighted Composite Index. The index is rebalanced on a quarterly basis
Final Thoughts
The Executive Order is a starting gun, not a finish line. It sets in motion a regulatory process that could eventually expand the menu of investment types in 401(k) plans—but the changes will take time.
When alternatives do arrive, our assumption is that they will most likely be in packaged, diversified vehicles with modest allocations, and will require enhanced monitoring tools, clear fiduciary documentation, and participant disclosures to meet ERISA standards. Further, it is not clear to us the benefit on certain types of alternative investments, like hedge funds for the average 401k participant, as initial research indicates the performance, before fees, underperforms the US equity markets without a fair adjustment to risk and volatility.
Sources:
White House – Executive Order text & fact sheet (Aug 7, 2025). The White House+1
Debevoise (client alert) – Summary; focus on DOL safe harbors/fiduciary clarity. Debevoise
KPMG Reg Alert (PDF) – Agency directives and coordination points with SEC/Treasury. KPMG
Simpson Thacher (PDF) – Litigation-risk context and expected DOL guidance path. Simpson Thacher & Bartlett
Forbes / Axios coverage – Industry reaction and implications for private markets/crypto access. Forbes
Hedge Fune Research – HFRI 500 Equity Hedge Index Performance Snap Shot. https://www.hfr.com/indices/hfri-500-equity-hedge-index/
Morningstar – Vanguard S&P 500 ETF VOO Performance https://www.morningstar.com/etfs/arcx/voo/performance
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