Paradise Lost

Before we get any further, I hope you'll listen to my conversation with Professor Larry Kotlikoff on TREUSSARD TALKS.

Larry is an extraordinarily accomplished economist who's made many major contributions to macroeconomics since getting his Doctorate in Economics from Harvard back in 1977.

This includes the topic du jour in Washington: The national debt and the deficit. This is a fairly geeky conversation, but it's an important one with a leading thinker on the topic.

For what it's worth, Larry was a Senior Economist on the President's Council of Economic Advisers under Ronald Reagan. He's been thinking about these issues at the highest level for an increasingly lengthy period of time… 😉

You can find this episode of TREUSSARD TALKS with Larry Kotlikoff on:

• Apple Podcast here. 

• Spotify here.

• YouTube here. 

Welcome to the middle of August 2025…

So much is happening these days that it can be hard to keep track.

On the trade war front, we now have a brand-new 90-day extended "truce" with China. Of course, this truce still carries 30% tariffs on Chinese goods coming into the U.S. market. So there is that.

Then again, maybe, just maybe, this isn't about international trade at all.

At least that's what you may conclude after reading that the two leading makers of advanced computer chips — Nvidia and AMD — have agreed to pay directly to the U.S. government 15% of their revenue from AI chips sold to China (And reports over the last couple of days suggest the U.S. government may take a direct stake in another chip maker, Intel).

Maybe this is about getting "a piece of the action." Raising taxes in new and interesting ways on U.S. consumers and now U.S. companies as well. Or, as Greg Ip at The Wall Street Journal put it on August 11, “The U.S. Marches Toward State Capitalism With American Characteristics.”

And then we had the kerfuffle over the latest employment report on August 1, which cost the head of the Bureau of Labor Statistics her job.

Believe it or not, fewer jobs were created over the last three months than people originally thought. This reminds me of a couple of things that I said recently.

And this one…

But possibly the most salient headline for us all as investors over the last couple of weeks is that more excitement might be coming to a 401(k) plan near you.

And by more excitement, I mean exotic things like private equity, crypto, and all sorts of other “alternative assets.” To be clear, there is a world of difference between private equity and crypto. But hey, I wasn't the one who decided to lump them together.

I will borrow from Jason Zweig at The Wall Street Journal here to not bury the lede: You’re Invited to Wall Street’s Private Party. Say You’re Busy.

Outside of 401(k) plans, the race to get you and me to buy alternative assets directly has been running hot for a while.

There are loads of reasons why, such as:

• Higher interest rates have slowed things down massively in alts lands over the last 3 years. The trade war hasn’t helped in 2025 either.

• Institutional investors (like pension funds and insurance companies) want to see some of their previous investment dollars come home before sending more back out into the world.

• And a newcomer to the list… Universities and their endowment funds are realizing that they may need cash real fast to cover ongoing expenses.

With old “institutional” sources of capital generally speaking maxed out, individual investors seem like an obvious source for new liquidity.

And then there is the matter of fees… As a first approximation, alternative funds carry higher fees than plain-vanilla investments. Those are fees to you, but they’re revenue to the asset manager.

For a long time, 401(k) plans have been treated as sacred ground, so to speak.

What I mean by that is that 401(k) accounts have been granted significant tax advantages given the role they play in helping American workers prepare for retirement.

As a consequence, the companies that sponsor these plans — your employer — feared that they may get sued if they let you do things that turned out to be “imprudent” with those tax-advantaged dollars.

Paying high fees for no more certain investment outcomes felt like it could easily be deemed “imprudent” (given the wide range of financial sophistication among employees).

So they kept things relatively cheap and boring.

This practice was backed by the U.S. Department of Labor’s general view that, since the government had given 401(K) plans a sweet deal on the tax front, they had a say in protecting those assets from “imprudent” behavior too.

Apparently that’s changing.

We can have a serious discussion about the attributes — positive and negative — of various alternative investments. I don’t believe in absolute declarations of “good” and “bad” (with rare exceptions). But complexity comes at a cost. It requires sufficient knowledge to decide what makes sense in general, and what makes sense for you. Like understanding that private equity is functionally levered equity investing, amplifying gains and losses. Again, that doesn’t make it “bad.” That’s just the equation you’re facing.

For the asset managers, the equation is very different:

A predictable allocation to THEIR product every two weeks, at reasonably high fees, straight from YOUR paycheck.

So…

If your 401(k) adds new options or bakes alternatives into existing ones like target date funds, ask HR three things:

1. What exactly is the product, and how do liquidity and valuation work?

2. What is my all‑in cost, and what net benefit must it clear versus public markets to be worth owning?

3. How does this change my portfolio’s risk, and who is accountable for monitoring it at the plan level?

With crisp answers, decide whether it fits your goals. Then do one thing: document your reasoning, sizing, fees, and exit rules. That’s how you keep your agency as alternatives enter your lineup.

And yes — you now have a new job: performing due diligence on alternative assets. Isn’t life fun?