Private Equity Investing

By Matt Haycox, founder of Alternative Fortune, entrepreneur and investor. Last reviewed: July 2026. This is general information, not financial advice.

Key takeaways

• Private equity is the business of buying unlisted companies, improving them over years, and selling them for more, with capital locked up for most of a holding period of eight years or more.
• Its long-run appeal is outperformance paid for illiquidity, but that edge lives in the gap between top and median managers, and it has lagged public markets over recent years.
• Access runs from listed PE investment trusts anyone can buy in a brokerage account down to closed-end funds restricted to institutions.
• The main risks are illiquidity, wide manager dispersion, discounts to net asset value on listed trusts, and periodic valuations that can lag reality.
• It suits patient investors who can select managers and lock money away; it is a poor fit for anyone who may need the money back at short notice.

What private equity is

Private equity is the business of buying companies that are not listed on a stock exchange, improving them over several years, and selling them for more than was paid. A private equity fund pools money from institutions and wealthy individuals, uses it to take controlling or significant stakes in private businesses, works on those businesses away from the glare of quarterly reporting, and returns the proceeds when each company is sold or floated. The holding period is long, commonly eight years or more, and the money is locked up for most of that time. That patience, and the control that comes with ownership, is what separates private equity from almost every other way of owning a business.

It is now one of the largest pools of capital in the world. The total value of private assets held in funds rose 15.4% to an all-time high of $14.9 trillion on 2025 data, per Ocorian, and Preqin forecasts total private-markets assets under management will reach $32 trillion by 2030. Buyout funds alone are sitting on roughly $1.3 trillion of “dry powder”: committed capital that has been raised but not yet spent.

How the asset class has actually performed against public markets, how private equity differs from venture capital, the ways to get exposure wherever you live, the tax questions worth asking, the risks, and who it genuinely suits are all worth taking in turn.

Why private equity is an asset class, and how to invest in it sensibly

Private equity has one long-run pattern working in its favour and one caveat that undercuts it, and both matter before you decide how to buy in.

The long-run pattern is outperformance paid for illiquidity. Over ten years, the Cambridge Associates US Private Equity Index returned 15.25%, adding 219 basis points over the Russell 3000 and 480 basis points over the MSCI World on a public-market-equivalent basis, per Cambridge Associates. KKR frames the same idea as private equity historically compensating investors for the lock-up with around 400 basis points of long-term outperformance on average. Over longer windows the gap grows wider still, with private equity beating the S&P 500 by 597 basis points over 20 years and 489 basis points over 15 years, per Moonfare.

The activity backdrop is rebuilding too. 2025 marked a rebound after three years “in the relative doldrums”, with buyout deals and exits at their second-highest values on record and the average disclosed deal size hitting an all-time record of $1.2 billion, per Bain. Thirteen megadeals of $10 billion or more accounted for $274 billion, 30% of the global total.

The caveat. Those long-run averages hide two problems. The first is dispersion. Between 2015 and 2025 the top buyout managers delivered around 20.7% IRR while the median PE fund managed roughly 12%, per Moonfare, so picking the wrong manager makes the outperformance disappear. The second is recency. Over one, three and five-year windows private equity has recently lagged most public benchmarks, and a basket of 15 large listed PE managers posted a median 11.97% in 2025 against 22.34% for the MSCI ACWI, per PE Stakeholder. Hamilton Lane’s own data shows buyout has beaten or matched public benchmarks in every vintage year except the last four. Private equity rewards investors who can select managers and get access to the good ones; it does not lift everyone equally.

Private equity vs venture capital, and the sub-strategies

Newcomers most often confuse private equity with venture capital, so start there.

Private equity vs venture capital is a question of maturity, control, and where the risk sits. Venture capital funds back young, often pre-profit companies, take minority stakes, and accept that most of the portfolio will fail while a few winners pay for everything. Private equity, in the buyout sense, buys established, cash-generative businesses, usually takes control, and manufactures returns by improving operations, reshaping the balance sheet, and selling into a stronger market. Venture is a game of home runs from a book of long shots; buyout is a game of reliable base hits from companies that already work. They sit at opposite ends of the same private-markets spectrum, and the sub-strategies below spread out along it.

• Buyout: controlling stakes in mature companies, with value created through operational improvement and financial engineering, then an exit via sale or flotation. Leveraged buyouts, where a large slice of the purchase is funded with debt, are the most familiar version, and most listed PE trusts are built around this approach.
• Growth equity: significant but often non-controlling stakes in companies that are already growing and profitable but want capital to scale. It sits between venture and buyout on the risk curve, and in H1 2025 it slightly outperformed buyouts, returning 4.9% against 3.6%, per Cambridge Associates.
• Distressed and special situations: buying companies or their debt when they are in trouble, then profiting from a restructuring, a turnaround, or a debt-to-equity conversion. This strategy tends to do best in downturns, when good businesses hit temporary cash crises.
• Turnaround and operational buyouts: taking on underperforming but fundamentally sound businesses and fixing management, costs, or strategy before selling them back into health. Closely related to distressed, but focused on operating problems rather than balance-sheet ones.
• Mezzanine and subordinated capital: providing the layer of financing that sits between senior debt and equity, usually with an equity kicker attached, so returns come from interest plus some upside in the business.
• Fund-of-funds and co-investment: diversified access that spreads money across many underlying managers or invests alongside them, trading a layer of fees for breadth.
• Secondaries: buying existing fund stakes from investors who want out early, frequently at a discount to stated value. It has become one of the faster-growing routes into the asset class, a $160 billion back door into private equity at a discount, covered in the secondaries deep dive.

How to invest in private equity: the vehicle ladder

There is no single door into private equity. There is a ladder, running from the most liquid and accessible rungs to the most hands-on and restricted. Where you can stand on it depends on how much you can commit, how long you can lock it up, and, in most jurisdictions, whether you qualify as a professional or accredited investor.

Listed private-equity investment trusts sit at the top. These are exchange-traded companies that hold portfolios of private businesses, so you get daily-liquid, publicly quoted access to a diversified PE book, and you buy and sell the shares like any listed stock. Because they trade on a market, their price can drift above or below the value of the assets they hold, which has driven much of what happened to these trusts in 2026.

Interval funds and tender-offer funds are the next rung. These are registered funds you subscribe to at net asset value and redeem from only at set windows, typically quarterly, with redemptions capped at roughly 5% to 25% of net asset value per period, per Moonfare. You get some liquidity, but on the fund’s schedule, not yours.

ELTIFs, LTAFs and BDCs are the structures built to widen access. These are regional vehicles: the EU’s ELTIF and the UK’s LTAF were designed for high-net-worth and mass-affluent investors, per Financier Worldwide, with periodic, often capped redemption windows, while Business Development Companies are the US listed or non-traded vehicles that invest directly in private companies. Most jurisdictions have their own equivalents, so check what is authorised where you live.

Fund-of-funds, co-investment and secondaries vehicles spread capital across many managers or buy existing stakes at a discount. They demand more commitment and offer less liquidity than anything above them, but they diversify away a lot of single-manager risk.

Closed-end LP funds sit at the bottom, the classic structure. You commit capital that is drawn down over eight years or more through capital calls, per Mackenzie Investments, you pay a management fee and carried interest, and you are generally restricted to institutional and professional investors. Highest potential, highest friction, least liquidity.

Proprietary comparison: London-listed private equity investment trusts

For most global investors, the top rung, listed PE trusts, is the practical entry point, because you can buy them in a normal brokerage account. Many are London-listed, but comparable trusts trade on other exchanges, and international brokers can usually reach the London ones. The table below is compiled by Alternative Fortune from filings and market data. What stands out is the discount. In 2026 every trust here except 3i trades well below the stated value of its assets, and several are running large buybacks and tenders in response.

Compiled by Alternative Fortune from filings and market data, as at July 2026. 3i reports in sterling and HarbourVest in US dollars; the figures are not mixed. Discounts are wide across the sector in 2026 and move daily, so verify current levels before acting. Ongoing charges vary by trust; HgCapital Trust’s was 1.5% for FY2025, and others should be checked against each trust’s latest factsheet.

A discount of 27% to 38% means the market is pricing these portfolios well below what the managers say they are worth. If the managers are right, the buyer of the shares is getting the underlying companies cheaply; if the market is right, the stated values are optimistic. The buybacks and tenders, Pantheon’s £224m and HarbourVest’s £400m tender within a $1bn plan, per QuotedData, show that the boards themselves think the shares are worth more than the market is paying.

The numbers

Two things drive the case for private equity: the return record and the assets flowing in. Both are set out below.

The growth story underneath these numbers is retailisation. Semi-liquid evergreen funds, the structures that let non-institutional investors in, reached $457 billion of net AUM across 486 funds at the end of 2025, with more than half launched in the last four years, per Deloitte, and the market is forecast to reach $4.1 trillion of evergreen AUM by 2030. Regulation has helped: the EU’s ELTIF 2.0, in force since January 2024, removed minimum investment thresholds and relaxed marketing rules, per IQ-EQ, with the UK’s LTAF running in parallel and other regions loosening their own rules.

As Cameron Joyce, Head of Research Insights at Preqin, put it: “As we look toward 2030, private markets are entering a new era of growth, one defined by innovation, resilience, and strategic reallocation.” Bain’s Hugh MacArthur, chairman of the firm’s global private equity practice, is similarly constructive on the near term, telling Bain: “The good news is 2026 is shaping up as promising. Interest rates are moving south, if slowly, deal pipelines are well stocked … the conditions for deal and exit activity are rosier than for some time.”

Tax and structure: what to ask your adviser

This is not tax advice, and your own outcome depends on where you live. But the way private equity vehicles are built has tax consequences worth understanding before you commit, wherever you are.

The core principle is fiscal transparency, or pass-through. A private equity fund is usually structured so that the fund itself is not a separate point of taxation, and investors are taxed as if they held the underlying assets directly, per EY, which avoids adding a layer of tax at fund level. Funds therefore domicile either in taxing jurisdictions such as Luxembourg or the US, or in tax-neutral hubs. The Cayman Islands is the dominant tax-neutral hub: per SEC data, roughly one-third of the 42,717 registered private funds are registered there for tax purposes.

Two structural points to raise with your adviser. First, where the fund is domiciled shapes withholding at source and whether any tax treaty between that jurisdiction and your country of residence applies, and treaty relief is often what determines your net return. Second, carried interest, the manager’s share of the profits, has historically been taxed as a capital gain rather than income in many jurisdictions, a recurring policy flashpoint. Luxembourg reformed its regime in 2025: Bill No. 8590, applying from tax year 2026, cut the personal income tax rate on contractual carried interest to 11.45%, per HSF Kramer, with exemptions for fund-linked carried interest subject to a holding period. The lesson is not the specific rate; it is that these rules change, and change your net return, so ask how the specific vehicle is taxed at its home base and how that interacts with your residence.

The risks of private equity investment

• Illiquidity. In a classic closed-end fund your money can be locked up for eight years or more. Even the semi-liquid structures cap redemptions at roughly 5% to 25% per window, so in a rush for the exit you may not get out when you want.
• Dispersion between managers. The gap between top managers at around 20.7% IRR and the median at roughly 12%, per Moonfare, is the defining risk of the asset class. The average return is not available to you; you get your specific manager’s return.
• Recent underperformance. Over the last few years private equity has lagged public markets, with large listed managers posting a 2025 median of 11.97% against 22.34% for the MSCI ACWI, per PE Stakeholder. The long-run record is real, but so is the recent shortfall.
• Discount risk in listed trusts. The daily liquidity of a listed PE trust comes with price volatility: the 27% to 38% discounts to NAV across the sector in 2026 can widen further, and the share price can fall even when the underlying portfolio holds its value.
• Valuation and borrowing. Private holdings are valued periodically by the manager, not marked continuously by a market, so stated values can lag reality. Buyout returns also rely partly on debt, which amplifies losses as readily as gains when rates rise.

Common mistakes investors make

• Chasing the average return. The 15%-plus ten-year figure belongs to the index, not to any one fund you can actually buy. Median managers earn far less; assuming you will earn the benchmark is the first error.
• Ignoring the discount when buying listed trusts. Buying a trust near a premium and selling near a wide discount destroys returns that the underlying portfolio never lost, and in 2026 those discounts have run wide across the sector.
• Underestimating the lock-up. Committing money you may need within the decade to a structure that draws down and returns capital over eight-plus years is a mismatch that forces bad decisions later.
• Treating semi-liquid as fully liquid. Evergreen and interval funds look accessible until a stressed market triggers the redemption caps and the queue forms.
• Skipping the tax structure. Not asking how the fund’s domicile and carried-interest treatment interact with your residence can quietly shave a meaningful slice off your net return.

Who this suits

Private equity suits investors who can genuinely lock money away for a long time, who accept that manager selection, not the asset class average, will drive their result, and who want exposure to businesses that no longer show up on a public exchange. For those who can commit capital for a decade and stomach the illiquidity, the closed-end and fund-of-funds rungs offer the fullest exposure. For those who want private-markets exposure inside a normal brokerage account, with daily liquidity accepted in exchange for price volatility and discount risk, the listed trusts in the table above are the practical entry point. It suits patient capital and careful selectors. It does not suit anyone who may need the money back on short notice, or who expects to earn the headline index return simply by showing up.

Frequently asked questions

Is private equity a good investment? Over long windows the record is strong: the US PE Index returned 15.25% over ten years, beating the Russell 3000 by 219 basis points, per Cambridge Associates. But over the last few years it has lagged public markets, and the average hides a wide gap between top and median managers. It is a good investment for patient capital with good manager selection, and a poor one without either.

Private equity vs venture capital, what is the difference? Venture capital backs young, often pre-profit companies with minority stakes and accepts that most will fail. Private equity buyout buys established, cash-generative businesses, usually takes control, and improves them before selling. Venture is a home-run game; buyout is a base-hits game on companies that already work.

What are private equity returns, really? The long-run averages are high, +597 basis points over the S&P 500 across 20 years, but dispersion is enormous: top managers near 20.7% IRR, median managers near 12%, per Moonfare, and recent years have underperformed public markets. Your return is your manager’s return, not the index.

What is the private equity minimum investment? Traditional closed-end funds have historically been restricted to institutions with large minimums and multi-year capital calls. But that is changing: the EU’s ELTIF 2.0 removed minimum investment thresholds in 2024, and listed PE trusts can be bought for the price of a single share in a normal brokerage account.

Is private equity suitable for beginners? For beginners, the accessible end of the ladder, listed PE investment trusts and, where eligible, the newer semi-liquid evergreen funds, is the sensible starting point, because they offer diversified exposure without a multi-year lock-up. The classic closed-end funds are not a beginner’s vehicle. Whatever the entry point, understanding the discount, the lock-up and the manager-selection risk matters more than the entry price.