The campaign to push private equity into America’s 401(k) plans has largely been driven by Wall Street lobbyists, consultants, and asset managers. What has been missing has been an independent academic critique. That gap is starting to disappear.
First the outstanding analysis recently published by the NYU Stern Center for Business and Human Rights, https://bhr.stern.nyu.edu/quick-take/part-1-the-labor-departments-proposed-401k-rule-protects-private-equity-not-retirees/ review at https://commonsense401kproject.com/2026/08/02/nyu-stern-gets-it-right-the-dols-new-401k-rule-protects-private-equity-not-retirees/
Next, BYU Law Professor William Clayton and Duke Law Professor Elisabeth de Fontenay have submitted what may be the most comprehensive academic comment letter yet opposing the Department of Labor’s proposed 401(k) private-equity rule. Their accompanying Duke Law Journal article, Private Equity for All: The Paradoxical Push to Democratize Private Markets, expands the analysis even further. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6899998
For years, The CommonSense 401(k) Project has argued that the push into private equity was never primarily about helping retirees. The BYU/Duke paper reaches remarkably similar conclusions—but from mainstream legal scholarship rather than litigation or policy advocacy. That matters.
They Reject the Entire “Democratization” Narrative
Perhaps the paper’s greatest contribution is its willingness to challenge the central marketing slogan of the private-equity industry. For years Americans have been told:
“Retail investors deserve access to investments only rich institutions have enjoyed.”
Clayton and de Fontenay ask a much harder question. What if democratization actually benefits private-equity firms more than ordinary workers?
They conclude that retail investors receive:
- higher fees,
- greater complexity,
- more opaque investments,
- uncertain valuations,
- weaker liquidity,
while private-equity firms receive billions of dollars of new permanent capital precisely when institutional fundraising has slowed.
That observation perfectly complements our article The Great Fee Recapture. https://commonsense401kproject.com/2026/07/14/the-great-fee-recapture-why-wall-street-is-leaving-sec-mutual-funds-for-state-regulated-collective-trusts/
Wall Street isn’t fleeing SEC mutual funds because they are inefficient. They’re fleeing because transparency limits profits. https://commonsense401kproject.com/2026/07/27/erisa-investment-standards-should-be-higher-than-mutual-fund-standards-not-lower/
Timing Matters
One of the strongest sections explains why private equity suddenly wants retirement money.
The industry is facing:
- weak fundraising,
- fewer exits,
- excess portfolio companies,
- higher interest rates,
- reduced institutional allocations.
That is exactly when the industry begins talking about “democratization.”
Clayton and de Fontenay correctly observe the irony.
Retail investors are being invited into private equity at what may be one of the most difficult periods the industry has experienced in years.
That reinforces our earlier observation that Wall Street is seeking a new captive source of assets—not necessarily because those assets will earn superior returns, but because the industry needs fresh capital.
The Performance Debate Has Finally Gone Mainstream
One of the most encouraging developments is that respected legal scholars are now openly questioning what once seemed untouchable:
Does private equity actually outperform?
The authors review the academic literature and conclude that the evidence is far from settled. After adjusting for leverage, risk, fees, and methodology, many studies show little or no persistent outperformance, while any historical advantage appears to be shrinking as more capital floods the asset class.
Readers of The Great Performance Fraud will recognize this argument immediately. https://commonsense401kproject.com/2026/07/26/the-great-performance-fraud/ Our concern has never been merely whether returns are high. Our concern has been whether the reported returns are comparable to public-market investments at all.
They Confirm the Diversification Illusion
One of our longest-running themes has been that private equity appears less volatile largely because it is not continuously marked to market.
Clayton and de Fontenay make essentially the same point.
The apparent low correlation with public markets may simply reflect valuation smoothing rather than lower underlying economic risk. Comparing private-equity volatility with publicly traded securities can therefore create a misleading picture of diversification.
That dovetails directly with The Diversification Lie, where we argued that accounting conventions—not necessarily economics—can make private assets appear more attractive than they really are. https://commonsense401kproject.com/2026/05/04/the-diversification-lie-how-private-equity-and-private-credit-use-corrupt-accounting-to-hijack-pension-and-401k-allocations/
Target-Date Funds Become the Trojan Horse
Perhaps the paper’s most important practical insight concerns target-date funds.
The authors recognize that Wall Street’s goal is not for millions of workers to voluntarily choose private equity.
Instead, the goal is to embed relatively small allocations inside target-date funds—the default investment for tens of millions of Americans.
Once inside a target-date fund:
- fee increases become difficult to detect,
- performance attribution becomes harder,
- participants may not even realize they own private assets.
This perfectly reinforces our repeated warnings about state-regulated collective investment trusts. https://commonsense401kproject.com/2026/05/30/target-date-fund-fiduciary-due-diligence-guardrail-checklist/ https://commonsense401kproject.com/2025/12/07/wall-street-journal-exposes-target-date-cit-corruption-but-theyve-only-scratched-the-surface/
Complexity becomes a competitive advantage.
Litigation Is Not the Problem—It Has Been the Solution
One section deserves particular attention.
The Department of Labor argues that excessive ERISA litigation discourages innovation.
Clayton and de Fontenay reach almost the opposite conclusion.
They review decades of retirement-plan history and argue that fiduciary litigation played an important role in pushing plans toward:
- lower-cost investments,
- index funds,
- better monitoring,
- reduced fees.
Rather than viewing litigation as a problem, they see it as an important discipline on fiduciaries.
That conclusion should resonate with anyone who has followed excessive-fee litigation over the past two decades. The Supreme Court will soon rule if plans can block Private Equity transparency https://commonsense401kproject.com/2026/01/17/the-supreme-courts-intel-case-is-about-secrecy-fake-benchmarks-and-fiduciary-illusions/
Consultants Are Not Neutral
One section particularly caught my attention.
The professors observe that consultants specializing in private markets have structural incentives to recommend private-market investments because their businesses depend upon those markets continuing to grow. They also warn that performance data and benchmarks in private markets are susceptible to manipulation, making consultant recommendations especially difficult to evaluate independently.
That mirrors years of our reporting on consultant conflicts involving alternative investments.
Public Pensions Are Not a Valid Comparison
The private-equity industry frequently argues:
“Public pensions invest in private equity successfully. Why not 401(k)s?”
Clayton and de Fontenay dismantle that comparison.
Defined-benefit plans differ fundamentally from defined-contribution plans because they have:
- longer investment horizons,
- different liquidity needs,
- specialized investment staffs,
- greater bargaining power,
- pooled risk,
- stronger governance structures.
The authors conclude that public-pension experience cannot simply be imported into ordinary 401(k) plans.
At Commonsense we have argued Private Equity has cost public pensions billions but corruption and lack of ERISA Fiduciary standards and litigation, has let it remain hidden. https://commonsense401kproject.com/2026/07/20/public-pensions-are-manipulating-performance-screams-for-real-standards/ https://commonsense401kproject.com/2026/07/13/new-academic-paper-ohio-strs-had-two-performance-numbers-and-used-the-better-one-to-pay-bonuses/ https://commonsense401kproject.com/2026/05/22/calpers-sick-twisted-relationship-with-jeffrey-epstein-linked-apollo-private-equity/
An Emerging Academic Consensus
Taken together, three independent critiques now point in the same direction:
- NYU Stern questions whether the DOL proposal protects participants or primarily shields the private-equity industry.
- BYU and Duke challenge the economic assumptions underlying the entire “democratization” narrative and explain why the proposal could increase costs and risks while weakening fiduciary accountability.
- The CommonSense 401(k) Project has argued for years that opaque valuations, hidden fees, conflicted advice, and weakened disclosure standards are fundamentally inconsistent with ERISA’s participant-first principles.
These perspectives are not identical, and they differ in emphasis and legal theory.
But they converge on one central message:
The burden of proof belongs to those seeking to transform the American retirement system—not to those asking that ERISA continue to demand transparency, independent valuation, meaningful fee disclosure, prudent fiduciary oversight, and accountability before exposing millions of workers’ retirement savings to increasingly opaque private-market products.
That is a debate worth having. And thanks to the work of Professors Clayton and de Fontenay, it is now being advanced with rigorous scholarship rather than marketing slogans.
The CommonSense 401k Project 