Spring 2026
— William H. Darling, Chairman & CEO
Sometimes the most important reaction to a new, bad idea is “just say no.”[1] A subtle variation on that theme is evolving now at the US Department of Labor (DOL). On March 30, 2026, the DOL released its long-awaited proposed regulation entitled “Fiduciary Duties in Selecting Designated Investment Alternatives” in response to President Trump’s Executive Order that calls for expanded access to private equity and other alternative investments for 401(k) plans and their participants.”[2] However, “the proposed rule offers an expansive view of fiduciary prudence under ERISA with respect to the selection of any designated investment alternative, which is consistent with DOL’s historically neutral posture that neither favors nor disfavors any particular type of investment or investment strategy.”[3]
Basically, the proposed rule tells fiduciaries to “do your job” and rigorously and contemporaneously evaluate and document the evaluation of every investment decision, including private credit. The proposed rule puts forward a “non-exhaustive” list of six factors and how to approach each. While any, and probably every, fiduciary/investment adviser could quibble with the list and the benefits of some of the items, the main purpose of compliance is to gain safe harbor benefits. Fiduciaries following the guidance “are entitled to significant deference.”[4]
The proposed rule’s essence is “empowering fiduciaries to exercise their own judgement and diligence in making what they consider to be prudent decisions that will be in the best interests of plan participants—without undue fear of litigation over every good faith judgement call.”[5] Since the coverage of liability in our society almost always involves insurance, the Ropes & Gray Alert rightly points out that the long-term benefit to both fiduciaries and to society is that fiduciary liability insurers “may become less willing to authorize early or outsized settlements” on prudence claims[6] for fiduciaries following the guidelines. The comment period runs for 60 days to approximately May 30, 2026.
We would hope that the US Securities and Exchange Commission (SEC) would adopt a similar approach to reaffirming, rather than diluting, the fiduciary standard.
Effects of the Proposed Rule
What do we think will be the effect of an adopted proposed rule on the inclusion of private credit or private equity in 401(k) plans or if expanded, to any investment account? As noted in another article in this issue of QMP, we’ve been a bit skeptical of their inclusion for the macro reason that too many dollars are chasing too few good deals.
Also, the proposed rule factors include having “the skills, knowledge, experience and capacity to comprehend the investment sufficiently to discharge its obligations.”[7] The trick here is that you either understand the investment well enough that you know it shouldn’t be included and do it any way or you are ignorant about key aspects of the investment. Neither is a good position to be in under the proposed rule.
What’s a bad deal? Twenty years ago, we watched a private equity investment in a start-up mining operation that was aggregating mining projects from other miners being pitched as a private equity investment to the investment committee of a not-for-profit. Reputations were good and financials looked good. However the private equity manager didn’t know that within the industry, the management team was pitching itself as taking problem assets off mining companies’ books to relieve them of the hassles of closing down underperforming assets. Everyone said nice things about the management team. The investment did not turn out well.
Private credit has so much money seeking to be invested that it is moving into consumer debt.[8] The assets are being bought from the initial originators, retail companies or traditional banks, or arrive through private credit forward-flow arrangements where the retail store ships new loans directly to private credit. Either you know the industry and walk away or you invite a legal hassle, under the proposed rule. This suits us.
Natural Resources and Minority Rights
We look for ways to understand globalization. Economists favor letting each country do what it does best. The last forty years, however, have favored countries that were able to game the system. The current trade war probably has, at its base, “fairness.” Aside from economics, tariffs and trade, there seem to be at least two other important influences. One is who owns the natural resources in a particular country and the second is how the minority’s rights are protected in its political system, perhaps fostering innovation if protected.
Recent articles on the North American mining engineering technique of fracking going global illustrate one influence.[9] Mining techniques are applicable around the world. Why does the Middle East rely on primary recovery methods while Texas relies on secondary and tertiary extraction techniques and fracking? When property is purchased around the world, it usually only includes the surface. Subsurface mineral rights are usually owned by the “crown,” meaning the government, which decides how to develop the mineral. When buying property in the US the ownership extends to the middle of the earth. The traditional legal view of a “bundle of rights” allows mineral rights to be severed from the surface rights. In the US, individuals make decisions about the development of their property.
On political systems and progressivism, US Supreme Court Justice Clarence Thomas recently said, “Human history teaches us, alas, that numerical majorities frequently seek to control government, and use the state to violate the rights of the minority.”[10] A parliamentary system of governance enshrines majority rule. A king or authoritarian style of governance doesn’t have to worry about democracy, only rebellion. As Justice Thomas notes, “The Constitution is the means of government; it is the Declaration that announces the ends of government.”[11] Thomas quotes Woodrow Wilson, who redefined liberty as “the right of those who are governed to adjust government to their own needs and interests.” In other words, Thomas argues, “liberty no longer preceded the government as a gift from God, but was to be enjoyed at the grace of the government.”
Thomas also quotes Calvin Coolidge at the 150th anniversary of the Declaration: “If all men are created equal, that is final. If they are endowed with inalienable rights, that is final. If governments derive their just powers from the consent of the governed, that is final. No advance, no progress can be made beyond these propositions. If anyone wishes to deny their truth or their soundness, the only direction in which he can proceed historically is not forward, but backward toward a time when there was no equality, no rights of the individual, no rule of the people.”[12] Ownership of natural resources and protection of the minorities’ rights may turn out to be the real economic competitive advantages for America.
We know that you are the most valuable business development tool that we have. Your referral of a friend, colleague or family member to us is the most important way that we grow. We thank you for your support and want you to know that we are dedicated to serving your best interest.