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In several previous posts, including my April 3, 2025 Blackstone and Brookfield Exposure Increase post, I touch upon why it is wise to 'follow the money' if we want to create wealth.
Invest In The Best In A Saturated Industry
The asset management industry is saturated with many industry participants likely to:
- be absorbed by other industry participants; or
- fall by the wayside.
Blackstone (BX) is one of the premier global asset managers with over $1.2T of assets under management (AUM) at the end of Q2 2025. This staggering amount, however, pales in comparison to the total addressable market.
Having neither the expertise nor the desire to spend time trying to determine which asset managers will survive an industry shakeout, I limit my exposure to the largest industry participants (eg. BX).
Just Exactly What Is An Investor's Exposure?
I don't think any private equity investor truly comprehends their investment exposure. When we turn over money to an asset manager, we rely on its track record of success.
I invest in BX knowing the firm's interests align with mine. While BX collects fees based on AUM, BX really 'hits the jackpot' when it generates superior returns for its investors.
My risk tolerance, however, is such that I do not have direct private equity exposure. I limit my private equity exposure to BX and not its direct investments.
Private equity is a largely unregulated financial industry wherein a firm purchases an existing business with borrowed capital. The private equity firm will assign debt to the acquired business. It will charge management fees to the business and then resell whatever is left, typically, but not always in a public offering.
Private equity can be highly lucrative. It, however, entails the risk that nobody will want to buy the stripped-down, debt-burdened asset in question.
Given the risks associated with private equity investments, it has historically been limited to wealthy investors and large professionally managed funds that can tolerate significant losses. This market, however, is somewhat limited which is why private equity firms started lobbying the US federal government to give it access to defined-contribution pensions, such as 401(k)s.
Private Assets and 401(k)s
In the August 2025 'Democratizing Access to Alternative Assets for 401(k) Investors' executive order, the Labor Department and SEC were directed to relax guidance, enabling alternatives such as private equity, real estate, and private credit to be included in 401(k) lineups. This policy shift removed key barriers that had long excluded retail retirement investors from private markets, creating a new multi-trillion-dollar addressable market for alternative managers.
Asset managers have been eager to tap into 401(k) plans because they represent over $12T dollars across more than 70 million American participants. This is one of the largest pools of untapped investment capital. With the new regulatory changes, alternative assets can now enter this market.
Target-Date Funds (TDFs) and Collective Investment Trusts (CITs)
Many asset managers plan to integrate private assets into TDFs (the default option in most 401(k)s) because they automatically adjust asset allocation by age and are simple for participants. By embedding private credit or equity within these portfolios, firms like BX can capture exposure to retail capital without requiring individuals to make complex allocation decisions.
CITs have also become a key vehicle for entry into 401(k)s due to lower costs, flexible fee structures, and compatibility with retirement plan infrastructure, making them a preferred tool for scalable access to these assets.
Blackstone Targets 401(k)s
Relatively recently, BX has entered the race to get assets such as private equity and private credit into 401(k)s. It is launching a business unit devoted to tapping the market for what are called defined-contribution (DC) retirement plans. This business unit will reside within its ~$0.28B private-wealth group.
A DC retirement plan is a plan where contributions from the employer and/or employee are set and known. The final retirement income, however, is not. The total amount available at retirement depends on the contributions made and the investment performance over time. Employees often choose how their contributions are invested from a selection of options.
Risk of Lawsuits
Despite the risk of lawsuits, the DC market has long been seen as a holy grail for BX and its competitors. Employers, however, have been hesitant to introduce private assets to their retirement-plan lineups because the risk of lawsuits attributed to private investments’ high fees, lack of transparency, complexity, and poor liquidity.
Private assets typically involve locking up money for longer periods than stocks and bonds and tend to come with higher fees. The law governing 401(k) plans requires companies to act in the best interests of plan participants. This vague standard has opened the door for employees to launch hundreds of lawsuits against employers over the past two decades. Many of the suits alleged excessive fees. Some lawsuits have resulted in multi-million dollar settlements for workers at companies including Boeing and Lockheed Martin.
While federal law does not prohibit the use of alternative investments in 401(k)s, the fear of being sued encourages employers to stick to plain-vanilla investments with low fees rather than options like private equity, which cost more but have the potential for higher returns over the long term.
Interestingly, litigation over the years has saved 401(k) participants billions of dollars by helping push down fees. Since 2009, fees in the plans have dropped by 20% - 25%, according to an October 2024 report by the Investment Company Institute and BrightScope that analyzed large retirement-plan disclosures.
Final Thoughts
I encourage you to listen to a relatively recent Jon Gray, President and Chief Operating Officer of the Blackstone Group, presentation in which he explores the forces driving growth and opportunities shaping the future of private equity, real estate, credit, infrastructure and more.
When I completed my 2025 mid-year portfolio review, BX was my 10th largest holding. At the time, I held 1831 shares and the share price was ~$150.
On October 17, 2025, I acquired an additional 100 shares @ $156.4852 in a 'Core' account in the FFJ Portfolio bringing my exposure to 1939 shares (1637 in a 'Core' account and 302 in a 'Side' account); I automatically reinvest the dividend income.
If BX appeals to you as a potential investment, you may wish to diarize the release of BX's Q3 2025 results slated for October 23.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long BX.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your research and due diligence. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
