In 1952, Noah "Soggy" Sweat Jr. gave what became known as the "whiskey speech" on the floor of the Mississippi state legislature. Prohibition was a hot-button issue, and debate raged between the "wets" and "drys." When asked for his stance, Sweat delivered a two-and-a-half minute speech that captured the nuance--and contradiction-- of both sides (full text included below).
I think about this speech anytime there is a proposal to loosen regulations designed to protect people from themselves. Striking the right balance is tricky. And as momentum grows to allow "alternative investments" into traditionally conservative employer retirement plans, I've been weighing the idea through the lens of Sweat's logic:
The Stimulating Drink
What are alternative investments ("alts")? Broadly, they're anything that isn't a traditional stock or bond, but common examples include: private equity, private credit, hedge funds, real estate, commodities, and even crypto.
Historically, alts have provided three primary benefits:
1. Diversification - Well-selected alts tend to move differently than stocks and bonds. Adding them to a portfolio can reduce overall volatility while maintaining or even enhancing returns.
2. Illiquidity Premium - Most alts come with lock-up periods, meaning you can't easily cash out. Investors are generally compensated with potentially higher returns for this inconvenience.
3. Higher Returns - Talented alt managers can exploit market inefficiencies in the less-regulated alt universe, aiming to outperform public markets.
But these investments are often complex, opaque, and expensive. That's why many are only available to "accredited investors"--those with certain levels of wealth, income, or professional expertise. For years, this exclusivity allowed wealthier investors to reap the benefits, especially in private equity.
Devil's Brew
Then in 2022, everything changed. As the Federal Reserve hiked interest rates from 0.25% to 4.25%, the private equity machine sputtered. Funds couldn't sell their portfolio companies, valuations fell, and investor enthusiasm dried up. So private equity fund managers started looking for a new source of capital: your 401(k).
Over the past year, major firms like Blackstone and Vanguard, Apollo and State Street, and KKR and Capital Group have all announced partnerships to develop private equity or private credit funds aimed at employer retirement plans. Currently, regulatory hurdles prevent most plan providers from offering these options, but the White House is reportedly considering an executive order to pave the way.
My Stand
If by alts, you mean the well-managed, diversifying complement to a balanced portfolio, then certainly I am for them. But if by alts, you mean the illiquid leftovers being repackaged and sold to retail investors after wealthy clients have passed, then certainly I am against them.
Maybe these partnerships will bring more transparency, better pricing, and wider access to an asset class long reserved for the wealthy. But I worry they'll just lead to overly risky, high-fee investments that leave everyday investors worse off in retirement.
I believe in freedom of choice. But when the average retirement saver becomes the target for complex products they don't fully understand, the balance shifts.
Whiskey Speech - Noah S. Sweat
"My friends, I had not intended to discuss this controversial subject at this particular time. However, I want you to know that I do not shun controversy. On the contrary, I will take a stand on any issue at any time, regardless of how fraught with controversy it might be. You have asked me how I feel about whiskey. All right, this is how I feel about whiskey:
If when you say whiskey you mean the devil's brew, the poison scourge, the bloody monster, that defiles innocence, dethrones reason, destroys the home, creates misery and poverty, yea, literally takes the bread from the mouths of little children; if you mean the evil drink that topples the Christian man and woman from the pinnacle of righteous, gracious living into the bottomless pit of degradation, and despair, and shame and helplessness, and hopelessness, then certainly I am against it.
But, if when you say whiskey you mean the oil of conversation, the philosophic wine, the ale that is consumed when good fellows get together, that puts a song in their hearts and laughter on their lips, and the warm glow of contentment in their eyes; if you mean Christmas cheer; if you mean the stimulating drink that puts the spring in the old gentleman's step on a frosty, crispy morning; if you mean the drink which enables a man to magnify his joy, and his happiness, and to forget, if only for a little while, life's great tragedies, and heartaches, and sorrows; if you mean that drink, the sale of which pours into our treasuries untold millions of dollars, which are used to provide tender care for our little crippled children, our blind, our deaf, our dumb, our pitiful aged and infirm; to build highways and hospitals and schools, then certainly I am for it.
This is my stand. I will not retreat from it. I will not compromise."
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Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@lefleurfinancial.com.
Josh Norris, CPA, CFP, CFA is the managing member of LeFleur Financial, a wealth management and tax advisory firm.