Hi {{first_name}},

Good is the enemy of great.

This is how Jim Collins opens his seminal 2001 book Good to Great, arguing that few companies achieve true outperformance.  What sets the great ones apart is the leadership, the focus, and sustained discipline. Collins is one of my all time favorite authors and his lessons have become the foundation of how I think about building companies.  So what does ‘good to great’ look like in a portfolio? 

Two weeks ago, the Department of Labor proposed a rule that would make it easier to open 401(k) plans to alternative investments. I've been saying for years that more investors need access to private markets. And now $10.1 trillion in retirement capital is one rule change away from getting it.

Private equity. Private credit. Real estate. Crypto. The same asset classes that endowments and pension funds have used to build institutional wealth for a generation, becoming available to 70 million Americans whose retirement savings have been locked into the same menu for decades. Index funds. Target date funds. Bond allocations. Every position moving with the same market cycles.

This is good news. These plans could finally offer real diversification. Non-correlated exposure. A meaningful structural upgrade.

Good.

But good is the enemy of great.

The DOL just made good investing more accessible. Great investing still comes down to picking the right operators.

There is a 25-year dataset, covering 200+ pension plans and more than $4 trillion in assets, that shows publicly traded REITs outperforming the average private real estate operator. The real estate open to everyone beat the real estate that's hard to get into. For 25 years.

If you've been building a private market real estate portfolio, that sentence should make you uncomfortable. Hang in there. That's the short version of a bigger story.

I've laid it out for you in this issue. 

By the end you'll understand: 

— Walker Deibel
WSJ & USA Today Bestselling Author of Buy Then Build
Founder, Build Wealth

P.S. We have a new investment opportunity at Build Wealth (and it’s not like anything you’ll find in your 401k). The Rollick is a 74-unit, ground-up, Class A mixed-use development with strong demand drivers. 26.5% projected IRR, 2x equity multiple, 36-month hold. We’re placemaking 14 acres of urban development. The webinar recording, drone video, and PPM are all in the deal room. ACCESS THE DEAL ROOM

Alternative investments have been largely absent from 401(k) plans. The reason is litigation risk.

Since 2016, plan sponsors have faced hundreds of fee-related lawsuits and over $1 billion in settlements. Offering anything complex, or hard to defend in court, has not been worth the exposure. The Department of Labor is trying to change that.

The newly proposed rule introduces a six-factor safe harbor for evaluating investments: performance, fees, liquidity, valuation, benchmarks, and complexity. Follow the process and fiduciaries get a legal presumption of prudence. Courts haven't confirmed yet whether that presumption will hold up under challenge. And there are structural problems the rule doesn't touch: daily liquidity requirements, nondiscrimination testing, and withdrawal patterns that make most alternative fund structures incompatible with 401(k) plans. Those problems require SEC action or legislation, not a DOL regulation.

What will likely reach 401(k) menus is the packaged version. Interval funds. Target-date funds with a 5-15% alternatives sleeve. Vehicles designed for compliance, daily pricing, and scale. They'll hold different assets inside, but the wrapper is built for the same system: broad access, automatic rebalancing, and a daily NAV.

For the median 401(k) participant with $50,000 in their account, this is a meaningful upgrade. Real diversification. Genuine non-correlation to public equities for the first time.

Good.

Good Leaves a Gap

The DOL framework evaluates investments at the asset class level. How does it perform? What does it cost? How liquid is it? How does it benchmark?

The framework does not evaluate who is running the investment.

In private markets, the operator is the entire thesis. The same asset class, the same market, the same vintage year can produce a 7.7% return or a 21% return depending on who is selecting the deals, managing the assets, and executing the business plan. The gap between average and excellent in private markets is wider than in any public asset class. And the DOL's safe harbor evaluates the vehicle, not the driver.

Most people assume that access to private markets automatically leads to better returns. Twenty-five years of institutional data say otherwise.

The Data

CEM Benchmarking tracks investment costs and returns for large U.S. public pension plans. Their dataset covers 200+ plans and more than $4 trillion in assets over a 25-year period. When you compare publicly traded REITs against private real estate across that full dataset, the public version wins. Listed REITs returned approximately 9.7% annually, net of fees. The average private real estate allocation returned roughly 7.7%.

The liquid, accessible, fully transparent version outperformed the illiquid, exclusive version by approximately 200 basis points a year. For 25 years.

That average hides the real story. Look at the quartile spread. Top-quartile private real estate operators returned roughly 21%. Bottom-quartile operators returned around 3%. The gap between best and worst is nearly 1,800 basis points.

REITs sit right in the middle of that spread. Which means if you pick an average private real estate operator, you would have been better off buying a publicly traded REIT index and paying almost nothing in fees. The only private real estate investors who consistently beat REITs were the ones in the top quartile. And getting into top-quartile deals requires exactly what the DOL framework cannot package: insider knowledge, experienced judgment, operator relationships, and the ability to evaluate a team's track record before you write a check.

401(k)s will get alternatives. They'll get the average version of them. And in private markets, average is the wrong side of the line.

So this raises a question that has been debated at the highest levels of institutional investing for decades. If public markets deliver 9.7% with zero operator risk, full liquidity, and near-zero fees, why would anyone accept the illiquidity and complexity of private markets at all? Under what conditions does private actually win?

Two of the most respected minds in investing history took opposite sides of that argument. One built Vanguard. The other built Yale's endowment. They were both right.

The full REIT vs. Private Real Estate breakdown covers 25 years of pension fund data, quartile performance, fee structures, and operator selection patterns. Read it here.

John Bogle started Vanguard in 1974. Two years later he launched his first index fund. It raised $11 million against a $150 million target. Wall Street called it "Bogle's Folly."

Today, Vanguard manages over $9.9 trillion. About 80% of new investment capital flows into index funds. Bogle's thesis was simple: costs destroy returns, and the average investor will beat most active managers over time by owning the index. The data has only gotten stronger since he said it.

David Swensen ran Yale's endowment from 1985 until his death in 2021, growing it from $1 billion to $41 billion. He did it by moving aggressively into private equity, venture capital, and private real estate, then obsessing over which managers ran those assets. His annualized returns exceeded 13%.

You already saw the CEM data in the section above. Listed REITs at 9.7%. Average private real estate at 7.7%. For 25 years. Bogle's framework explains that result perfectly.

But Swensen knew it too.

When he wrote Unconventional Success in 2005, he told individual investors to do exactly what Bogle recommended: buy index funds. Yale's outperformance in private markets, he argued, was a product of a 30-person team, decades of manager relationships, and the institutional leverage to negotiate terms that individual investors would never see. Without that infrastructure, the average investor has no business trying to replicate what Yale did.

By Yale's own calculations, only 40% of the endowment's outperformance was attributable to asset allocation. The remaining 60% came from manager selection.

Read that again. The decision of which asset classes to own accounted for less than half of Yale's edge. The decision of who runs those assets accounted for the majority.

This is what the DOL's six-factor framework cannot solve. It evaluates the vehicle–performance, fees, liquidity, benchmarks. All of that measures the asset class. None of it measures the operator. And in private markets, operator selection is where 60% of the alpha lives.

Bogle and Swensen both had it right. Indexing wins at the average. Operator selection wins beyond it. The question for every investor considering alternatives is which side of that line they'll land on.

The data from Yale's endowment showed that 60% of outperformance came from manager selection. The CEM dataset showed an 1,800 basis point spread between top and bottom-quartile private real estate operators. The question is what produces that gap.

The answer comes down to three skills. And none of them can be packaged into a workplace retirement plan menu.

1. Underwrite the operator, not the asset class.

The 401(k) menu evaluates categories. Serious allocators evaluate people.

"We buy multifamily in the Sun Belt" is a category. "We buy 1970s vintage garden-style apartments in secondary markets where population growth exceeds housing starts by 3:1, and we renovate units to close a $200/month rent gap" is a thesis. The difference tells you whether an operator has a specific edge or is simply riding a favorable market.

Then go deeper. What is this operator's track record across a full market cycle? Not just the 2012 to 2021 tailwind. What happened in their portfolio during 2008? During the rate shock of 2022? Operators who only have a track record in a rising market haven't been tested.

Look at alignment. What percentage of the GP's net worth is co-invested alongside yours? An operator who puts meaningful personal capital at risk alongside LPs behaves differently than one collecting fees on your money.

The 401(k) investor picks from a dropdown. The allocator reads the underwriting.

2. Build access before you need it.

The best operators fill their funds through relationships built over years. They raise capital from a known base of repeat LPs. By the time a deal reaches a crowdfunding platform or a 401(k) menu, the capacity constraints have already filtered out the best opportunities.

Building access to top operators starts with education, because you can't evaluate what you can't find and you can't find what you don't know to look for. It compounds through relationships with operators and other LPs. Eventually deal flow comes to you. That process takes years. It cannot be compressed into a plan menu.

3. Concentrate where the opportunity justifies it.

Diversified alternative vehicles spread exposure across many managers and strategies. That's appropriate when you don't know specific operators. Active selection means the opposite. It means passing on the majority of what you see and concentrating capital where you've verified the track record, stress-tested the thesis, and confirmed the alignment.

That kind of discipline is uncomfortable. It means holding conviction when a position is underwater in year two because your underwriting says it compounds by year five. It means reinvesting distributions rather than pulling them. And it means trusting a process you built over years rather than one that rebalances automatically.

This is what I practice in my own portfolio. I consistently earn 20%+ IRRs on deals with and without tax advantages. The spine is selection. Education, access, and discipline are what produce the gap between 7.7% and what the top quartile delivers.

These are skills, not products. They can't be placed on a plan menu or reduced to a six-factor checklist.

If you’re looking for more on how to evaluate operators, stay tuned. We’re building something major just for you. To hear about it first, register at buildwealth.investnext.com. 

Rollick is a 74-unit Class A apartment community in Downtown West St. Louis. The first purpose-built Class A multifamily in this submarket in over 60 years.

The operator of this project, AHM, is vertically integrated. They handle construction and property management in-house at breakeven, keeping the value in the assets. Kyle Howerton, AHM's co-founder, spent a decade in coastal capital markets before moving back to St. Louis specifically to execute this strategy. He has essentially his entire net worth invested in the AHM portfolio.

AHM becomes the largest property owner in every neighborhood they operate in. They control the leasing data, the commercial tenants, and the pace of development. Over $100 million already invested across 14 urban acres in this neighborhood alone. When you own most of the block, you're engineering value at the neighborhood level. That's an informational edge no 401(k) menu can replicate.

The thesis: 7,000+ jobs added within a one-mile radius. The NGA West headquarters ($2.5B, 5,500 employees) just opened. Energizer Park, an official 2028 Olympics venue, is one block south. New Class A supply meeting that demand: zero. St. Louis has the second lowest multifamily development pipeline in the country.

I've invested $2.75M of my own capital in the AHM portfolio (including this project). Our GC, Holland Construction, is co-investing $400K alongside LPs.

26.5% projected IRR. 2x equity multiple. 36-month hold. $50K minimum. Accredited investors only.

View Rollick in the Deal Room

For informational purposes only. This is not an offer to sell securities. Projected returns are estimates only. Consult your financial advisor.

"Good is the enemy of great. And that is one of the key reasons why we have so little that becomes great." - Jim Collins

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This is not financial advice. Illustrative output of a reasoned thought experiment. Not a backtest, guarantee, or prospectus. Actual results vary based on market conditions, fund selection, timing, fees, taxes, and factors not modeled. Private credit, CRE, and leveraged strategies involve significant risk including loss of principal. Consult a qualified financial advisor.