Private equity funds are becoming available in 401(k) plans, promising higher returns. However, reporting methods for these returns can be complex. President Trump’s executive order is expected to increase the number of plans offering alternative assets. Private market returns are opaque, making it difficult for regular investors to assess performance accurately.

The private equity industry often uses internal rate of return (IRR) to showcase performance, but this metric can be misleading. IRR can be manipulated, leading to inflated numbers that don’t reflect true value. The Public Market Equivalent (PME) formula offers a more accurate comparison to stock market returns, but it’s not easily accessible for individual investors.

Determining true performance in private equity funds is challenging due to opaque reporting and valuation methods. The industry relies heavily on the honor system for valuing assets, making comparisons to public markets difficult. Despite these challenges, fiduciaries are responsible for evaluating and presenting 401(k) options in the best interest of savers. Private assets are likely to be a small portion of a retirement plan, with professionals guiding investment decisions.

Read more at Yahoo Finance: Private equity wants to help retirement savers earn more. Figuring out returns might break your brain.