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Abdul Al-Asaad got the idea for his retirement startup when he picked up Thomas Piketty’s landmark book on economic inequality.
He was working for Goldman Sachs as a credit trader in the mid-2010s, and Capital in the Twenty-First Century topped Wall Street’s reading list. Over lunch in SoHo last week, he repeated Piketty’s basic finding: “R is larger than G,” he said, summing up the economist’s finding that invested money grows faster than the economy as a whole — which all but ensures the rich get richer.
“To build wealth, you need three things: financial education, access, and capital,” he said. “If you do not have the first two, you can pay for them.” The access problem, he notes, has already been solved by low-cost index funds. Even now, Wall Street is desperate to drop the velvet rope to their once-exclusive investments. “Capital is the missing piece,” he said.
Al-Asaad’s solution is that favorite of financial tools: leverage. His startup, Basic Capital, will lend customers $4 for every $1 they contribute to their retirement accounts. Instead of investing mostly in stocks, Basic’s retirement accounts mostly hold loans, whose interest payments can ideally cover customers’ own borrowing costs. It is, essentially, a mortgage on your 401(k).
“I am allowed to finance a Coachella ticket… why can’t I finance Berkshire Hathaway?” he asked.
You can (there is $5.4 trillion worth of margin loans out there), but Al-Asaad says that structure is a bad fit for younger workers saving for retirement. Margin lenders revalue the collateral on a daily basis and can force borrowers to repay if that value dips below a certain level. Basic Capital offers something more akin to a mortgage: “Nobody is going to kick you out of your home if the real-estate market takes a header,” he said.
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The numbers are grim: The richest 10% of Americans have twice as much wealth as the bottom 90%, according to Federal Reserve data. A recent survey from BlackRock found that more people fear retirement than dying. The country’s retirement savings gap could cost federal and state governments an estimated $1.3 trillion by 2040, according to the Pew Research Center.
Al-Asaad says his long-term goal is for the government to back 401(k) loans for low- and middle-income people, like it does for home mortgages through Fannie Mae and Freddie Mac. That would bring down the cost of the financing and allow Basic Capital to invest in a broader bucket of assets than riskier private credit.
“The dream is in 10 years, literally, there is a Fannie Mae, and it’s not backing housing, it’s backing stocks and bonds,” he said.
He acknowledged that getting the kind of loan yields that Basic Capital is targeting would require buying some risky, illiquid things. Its model assumes about a 10% yield; a basket of junk bonds yields 7.5% today. Anything juicier requires buying loans from private credit shops, where a flood of money has driven down underwriting standards.
“You need to be comfortable with the risk that if there is a big credit event and the government does not intervene like it did during COVID, you could lose money — but only if you sell,” he said. “It’s not risk-free... But there is risk in not being invested, too, which we don’t talk about enough.”
Liz’s view
When Basic Capital came out of stealth mode earlier this month, my reaction was equal parts “neat” and “oh, dear.” Al-Asaad is right when he tells me that leverage is “just a tool.” Used wisely, it brings economic security within reach for more people. Overexuberance — a specialty of America’s financial system — virtually guarantees it ends badly.
The private loans that Basic Capital will buy are risky and largely untested in an economic downturn. I’m not a private-credit doomsayer, but I’ve written at length about the risks that might be building up there. Al-Asaad said Basic Capital will “move away” from private credit over time as lenders get more comfortable with the model — “people are taking our current iteration way too seriously,” he said — and he sees a future where retirement accounts include stocks, bonds, infrastructure, real estate, and private assets. (So does BlackRock CEO Larry Fink.)
But the broader problem he’s trying to solve — wealth inequality and a ticking retirement time bomb — is having a moment in both Washington and Wall Street. What was once a talking point for the Occupy left is getting a tailwind from a MAGA movement that won by tapping into grievances from those left behind economically.
“You’re detached from the economy, and you don’t feel like you’re winning,” Fink told me in March, when he suggested private investment accounts as a better option than Social Security. Republicans’ “big, beautiful” tax bill includes 401(k) accounts for kids, seeded with $1,000 from the government, to give more people “a stake in the American free enterprise system,” Sen. Ted Cruz told my colleague, Burgess Everett.
There’s always been a strange capitalist impulse embedded in Washington’s heavy-handed market support. Al-Asaad notes that America’s 20th-century push for home ownership — made possible by government mortgage guarantees — owed partly to a fear of communism. “The idea was ‘let’s give them all property.’ How do you give them all property?” he said. “You give them mortgages.”
It worked: The 30-year fixed mortgage, which is only possible because Fannie Mae and Freddie Mac guarantee them, brought down the cost of home ownership and built generational wealth.
I’m not sure it’s worse public policy to guarantee loans to bring down the cost of retirement. Levering up an illiquid asset for which there are a fixed number of buyers and whose value can be tanked by a factory closure or change to zoning rules doesn’t feel innately safer to me than levering up the S&P 500, but there’s certainly plenty of room to quibble with both.