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Public markets are shrinking. The number of listed companies in the US, for example, has declined by approximately 40% since the late 1990s. At the same time, companies are remaining private for longer, with the average time to an initial public offering (IPO) now exceeding ten years. This means that many of the world’s most innovative and dynamic businesses are generating their strongest growth while still in private hands. In 2023, around 85% of US companies, generating more than USD 100 million in annual revenue, were privately owned.
It therefore follows that a large majority of high-revenue, high-potential businesses are not yet available through public markets. PE investment provides a way to participate in this early value creation, which means that investors might be able to gain access to companies that could be scaling globally, refining business models, or consolidating leadership positions, potentially long before a public listing or strategic sale.
Find out more about the current investment environment in our Market Outlook End-Year 2025.
Disciplined value creation in a higher-rate world
The current macroeconomic environment, which in the US consists of higher interest rates and tighter liquidity, has made operational excellence more important than ever. Gone are the days when leverage alone could drive returns. Indeed, recently, the lion’s share of PE value creation has come from earnings growth, not financial engineering. Well-capitalised PE managers are in a strong position to acquire companies on attractive terms and implement strategic transformations. Their ability to improve margins, expand market reach, and enhance governance can support stronger outcomes over the long term, with greater resilience during periods of economic stress.
Diversification beyond public markets
PE investment can also offer meaningful diversification. Unlike public equities, whose performance is often driven by market sentiment and macroeconomic trends, PE returns are rooted in company-level value creation. Free from the demands of quarterly earnings reporting, private companies can focus on strategic transformation and long-term growth, supported by engaged ownership and operational expertise. This structural difference enables PE to deliver both portfolio diversification and disciplined long-term performance. Importantly, PE markets do not tend to move in tandem with public ones. Correlations typically range from 0.5 to 0.8 depending on strategy and geography (much lower for smaller buyouts, growth equity, and venture capital). This lower correlation can help reduce portfolio volatility and introduce return streams that are not dependent on public equity market movements.
Turning volatility into opportunity
Periods of market dislocation and uncertainty often result in mispricing and that can be an opportunity for PE to shine. With capital ready to deploy and the flexibility to structure deals on favourable terms, leading managers can capitalise on market inefficiencies and support companies through challenging cycles. Studies show that PE funds launched, for example, during the dot-com crash or the Great Financial Crisis achieved higher-than-average returns due to lower entry valuations and favourable exit conditions. Indeed, a 25-year analysis of PE’s resilience published by Institutional Investor in 2024 revealed that PE has outperformed public markets in every major modern crisis, with an average excess return of +8%. This highlights that volatility need not only be a challenge but can also be a source of long-term opportunity, especially for managers with capital, discipline, and operational expertise.
Participate in transformative growth themes
Some of today’s most powerful secular trends are unfolding in private markets. Innovations in artificial intelligence, digital infrastructure, healthcare, and the energy transition are often led by private companies, which then grow under private ownership or are acquired by strategic buyers. PE provides access to these long-term themes at an earlier stage, offering qualified investors exposure to industry disruptors before they become part of benchmark indices.
Smarter diversification through manager selection
PE offers asset class diversification, but there is significant variation in performance between managers. The dispersion in returns is greater in PE than in any other major asset class. The difference between a top- and bottom-quartile manager can exceed 20 percentage points, making manager selection essential.
Furthermore, it is beneficial to consider investing with managers who have different specialisations in order to benefit from the multiple sources of value creation. As shown in the chart below, a portfolio with only one PE fund has a 23.6% probability of having a total-value-to-paid-in-capital (TVPI) ratio of less than 1.0x, a measurement which indicates that an investor is expected to book a loss, whereas a portfolio with nine PE funds sees that probability drop to 0.7%.
Positioning for long-term advantage
In an environment defined by higher rates, geopolitical complexity, and accelerating innovation, PE markets potentially offer professional long-term investors something public markets increasingly struggle to deliver: access to growth, operational control, and differentiated returns. But realising these benefits requires careful access, and selecting higher-performing managers is key. Added to this, the higher-return potential comes at the price of longer holding periods and sometimes higher risk, depending on the choices made in terms of portfolio construction, instruments, and strategies, as well as industry exposure. Nevertheless, as the investment landscape continues to evolve, we believe that PE can play a core role in positioning portfolios for the decade ahead, enabling investors to move beyond market exposure towards genuine value creation.