By Matt Wirz

Private-fund managers are using April's market mayhem as a political tool in their campaign to pry open a vast new market: your retirement account.

Firms such as Apollo Global Management and Blackstone are arguing in Washington that when turmoil strikes public markets, Americans would be better off investing in their private-equity and private-credit funds. They contend that the funds provide ballast because their assets rarely trade, so their valuations are more stable during downturns.

Critics say that the firms are turning to the "retail" market because they have tapped out big pension funds -- and that private markets are a bad fit for individual savers. Smooth valuations can mask big problems and private-market funds can prevent clients from getting their money out in stressed markets, they say.

What are everyday savers to make of this debate and the firms at the center of it? A clutch of newish books helps explain how the so-called alternative-investment industry has taken over Wall Street and increasingly influences the U.S. economy.

Alternative-investment companies already deploy money for pension systems and the uberwealthy in private equity, private credit, infrastructure, hedge funds and technology venture capital. They control more than $17 trillion in assets, according to Preqin, and are quickly supplanting banks as the preferred source of capital for millions of consumers and tens of thousands of companies.

Still, the average American is only vaguely aware of them.

"The more people don't know and don't care and think it's too esoteric...the more time goes by and the private-equity industry is just getting richer," Carrie Sun, a former personal assistant to Tiger Global Management co-founder Chase Coleman, said in an interview. Sun describes her overtime on the job in Private Equity.

So many billionaires

The memoir and Hedged Out, a high-finance ethnography by Megan Tobias Neely, explain the new financial order by dissecting the people who run the investment firms. Other books -- Sachin Khajuria's Two and Twenty and Brendan Ballou's Plunder -- do the same by analyzing the companies and the deals they make.

Private, or "alternative," fund managers now bankroll virtually every piece of the U.S. economy and make a lot of money doing it. They collected an estimated $252 billion in fees in 2023 globally, about six times the $41 billion they made in 2013, according to Preqin, a firm that sells data on private funds and that was recently acquired for $3.2 billion.

Fund managers far outnumber tech moguls and bankers on the most recent Forbes list of billionaires. JPMorgan CEO Jamie Dimon sits below about 40 private-equity executives on the list.

Chieftains like Apollo's Marc Rowan and Blackstone's Steve Schwarzman also wield increasing political clout. Donald Trump consulted Rowan on the economy and picked hedge-fund manager Scott Bessent for Treasury secretary, a post typically held by bankers.

Fund managers recently deposed top U.S. university leaders and crushed government efforts to regulate their businesses.

"I've never seen so many billionaires," Steven Meier, chief investment officer for New York City's pension system, said on the sidelines of a private-equity conference in Midtown Manhattan. "These are smart, hardworking people who've been in the right place at the right time and, I have to ask as a fiduciary: 'Maybe we're paying too much in fees?'"

That question is crucial because alternative investments are now being sold to regular Americans through funds and their 401(k) savings plans. Private-equity fees cost clients about 6 percentage points of investment returns while stock and bond exchange-traded funds charge almost nothing.

The rise of private-fund titans

A typical alternative investment works like this: Partners launch a fund, contributing 5% from their own money and raising the rest from investors, promising to return the capital and profits minus fees in about 10 years. Strategies range from private credit to infrastructure, but private equity still accounts for about one-third of all investment dollars.

Fund founders make so much money because they run their companies with absolute power and little regulation, Tobias Neely writes in Hedged Out. The book draws on interviews with 48 hedge-fund workers to chart the evolution of the American financier.

The community bank executive of the mid-20th century morphs into the wheeling and dealing investment banker of the 1980s, then the billionaire private-fund manager of today.

Bankers answer to regulators and internal bureaucracies but fund founders go mostly unchecked, according to Neely. The funds are also less diverse than banks because white male founders hire and promote people who look and act like them, she writes.

This all helps in "legitimating their enormous compensation," according to the book.

Khajuria, a former private-equity partner at Apollo, sees alternative investing culture differently. The industry is a Darwinian pressure cooker where only the most capable succeed, he says. "These folks are built to win, through design and force of will."

Still, he agrees that as the investment firms grew bigger, they funneled more money and information -- the building blocks of power -- to their top executives.

"Not only is immense wealth accumulated in the hands of the few, but these individuals also have profound influence on increasingly broad swaths of the economy," Khajuria writes.

Changing the calculus

Private-equity funds purchase businesses using a mix of their own money and debt. If all goes to plan, the funds cut costs, boost revenues and sell the companies for double their money. If not, the debt can crush the acquired companies, causing layoffs and even bankruptcies.

The funds are spreading economic inequality, according to the book Plunder by former federal prosecutor Brendan Ballou. Private equity induces companies to act against their own interests -- and those of their customers -- to boost short-term profits, he writes.

The book catalogs people who lost jobs and pensions while working for stores, restaurants and technology companies that went bust after being bought by private equity. There are also accounts of hospital patients who died because private-equity owners cut staff.

Plunder proposes that regulators and lawmakers force private-fund managers to change their calculus. Congress and the Securities and Exchange Commission have been reluctant -- even before Trump's second term -- to crack down on the industry.

What then might improve corporate citizenship at alternative investment firms? The answer to this question, like most others on Wall Street, is to follow the money.

Top brass at these firms must still answer to their clients, the pension funds, university endowments and billionaire families who supply the dollars they invest. These "institutional investors" exist in symbiosis with private funds because they need high investment returns.

Still, some are starting to grouse about just how much of the profits the fund managers take. Institutional investors have a bit more sway now because investment returns have been mediocre, but that leverage will fade when private funds get access to retail investors, making them less dependent on fees from pensions and the like.

New York state's Meier and other investors are scrutinizing private-fund performance with an eye toward getting managers to reduce fees. That would mean more money for the workers, students and retirees they represent.

Write to Matt Wirz at matthieu.wirz@wsj.com

(END) Dow Jones Newswires

May 25, 2025 07:00 ET (11:00 GMT)

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