The rich already know how private equity mints money — and it’s not from a 401(k)

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The ultrawealthy are envied for many reasons. For instance, we wish we could access the same private-market investments that they favor.

Now, after the White House issued an executive order on Aug. 7, you may be able to invest like the billionaires do.

But would you want to?

The executive order allows ordinary retirement savers to invest in private assets and cryptocurrency. This will expand investment options for anyone with a 401(k) or similar tax-advantaged retirement plan.

It is a big deal — opening part of America’s $12.4 trillion defined-contribution market to private-asset managers. The largest private-equity firms and other asset managers are salivating at the opportunity to pitch this untapped market of retirement savers.

Private assets encompass a range of investments that do not trade on a public exchange. Examples include hedge funds, private equity, private credit and infrastructure.

The case for private assets is they can provide a buffer against inflation — plus steady returns. The downsides include high fees, illiquidity and complexity.

The nation’s biggest asset managers welcome the executive order. They want to develop funds that make private assets easier for people to buy, and argue that the added diversification serves savers’ best interests.

Larry Fink, chief executive of BlackRock BLK, says retirement savers should replace the traditional 60% stocks/40% bonds asset-allocation model with a 50/30/20 split: 50% stocks, 30% bonds and 20% private assets.

Read: Larry Fink proposes an alternative to the 60/40 portfolio. It means more fees.

Should you be excited about this widening menu of investment choices? It depends on whom you ask.

Some investment professionals like the idea of making private assets more available to more people.

“Historically, a number of private-market strategies have produced higher performance and additional diversification in defined-benefit pensions,” says Peter von Lehe, head of investment solutions and strategy at Neuberger Berman. “It’s appropriate that a broader range of investors have access to private assets in their defined-contribution plans because of the potential for return and diversification that these long-term investments can provide.”

However, von Lehe cautions that these investments are illiquid and “have a higher degree of complexity.” He says his “most appropriate use case” for private-market investments is through professionally managed target-date funds or other funds that allocate a percentage of defined-contribution money to these complex but potentially more lucrative alternatives.

Read: Here’s something the rich know about managing investment risk that can help you, too

Financial advisers have differing views on the role of private assets in client portfolios. Steven Roge, a certified financial planner in Bohemia, N.Y., says private markets are not for everyone.

“It’s for people in the wealth-accumulation phase, say 40 to 50 years old, who have a long time horizon and a high risk tolerance,” Roge says. “And they have to be sophisticated enough to understand it. We know if they don’t understand it, they may not stick with it.”

Of the firm’s 300 clients, he says that “only about a dozen” fit the bill for adding private-market assets to their retirement accounts.

Even with the expanded investment options that may result from the White House’s action, Roge remains a fan of passive strategies for most investors. “Indexing is how they will win over the long run,” he says. “But some clients want something that’s special and different” as they seek market-beating returns.

Given the illiquidity of private assets, Roge anticipates setting expectations for those clients who tend to monitor their portfolio daily — and who engage in frequent trading. “These private investments may only price four times a year,” Roge says. “That’s not enough action for certain clients who track their portfolio like a hawk.”

In his personal portfolio, Roge uses private markets — especially private equity — to diversify his holdings. He says he allocates about 25% to alternative assets. “It helps me sleep at night knowing my portfolio isn’t being pushed around by the volatility of public markets,” he says.

Roge adds that he is not concerned about the current high valuations of private-equity funds. “The valuations [of private-equity funds] are more realistic than the erratic valuations we see in public markets on a daily basis,” he says.

Other advisers are more skeptical of the White House executive order.

“It’s less being done out of interest for the general public and more for private industry lobbying the [Trump] administration,” says Alex Ruda, an adviser in Silver Spring, Md.

The executive order undoubtedly pleases asset managers and private-equity firms. For years, they’ve wanted to attract retirement savers’ money. These savers bear primary responsibility for managing their 401(k) compared with today’s older retirees, many of whom receive employer-funded defined-benefit pensions. While some younger savers enjoy picking their investments, others dread it.

“The average American worker isn’t equipped to navigate these complex [private-market] investments,” Ruda says. “And they may fall prey to a little performance chasing given where we are in the market cycle” — as private markets have outperformed publicly traded stocks since 2000.

Ruda feels so strongly about not incorporating private assets into client portfolios that he’s willing to forgo newcomers who express such interest.

“If I wanted to broaden my client base, I’d have to play to what they want,” he says. “But I don’t have to do that. So I’d say to them, ‘I’m not the best fit.’”

More: As private equity enters retirement plans, is it too dangerous for average investors to jump in?