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Key takeaway
Private equity represents a large, expanding, and increasingly accessible opportunity set. The asset class may offer investors diversification1 and access to a broader investment opportunity set than public markets, including companies earlier in their growth cycle.
What is private equity?
Private equity refers to ownership of companies that are not publicly traded. Private equity funds are generally structured as partnerships that pool investor capital to acquire such ownership stakes.
The path from private to public
Most companies begin as private businesses, raising capital through funding rounds. While not all pursue a public listing, many do through an initial public offering (IPO), which makes their shares available to public investors.
Types of private equity
The private equity universe is home to companies across myriad industries at various stages of their life cycles. Common private equity strategies include:
Venture capital
Provides capital to early-stage businesses with perceived long-term growth potential.
Growth equity
Finances more established companies in exchange for equity (usually a minority stake) to help scale, expand into new markets, or improve operations.
Buyout
Focuses on acquiring established companies, often using leverage, with the goal of improving operations or financial performance.
Secondaries
Involves purchasing private equity commitments from other investors.
Fund of funds
Refers to pools of capital that invest in other private equity funds, rather than directly in private companies.
Opportunity and access in private equity investing
There are many reasons investors might consider allocating to private equity, including the potential to:
Unlock a significant opportunity set
Private companies represent 29 times more of the investable universe than their public peers. What’s more, about 80% of US firms generating more than US$100 million in revenue remain privately held (Figure 1). So, investors who rely exclusively on public equity allocations may be missing out.
Tap into opportunities earlier, as companies stay private for longer
In 2000, the median age of companies at the time of IPO was six years. In 2025, the median age rose to 12.2 Because companies are staying private for longer, they’re larger and more profitable — and therefore often more expensive — when they enter the public market via IPO. Private equity allocations may offer investors access to future market leaders earlier in their corporate growth cycle, potentially for an attractive price.
Gain exposure to innovation
Many of today’s high-growth-potential companies in the most in-demand sectors, such as AI, cybersecurity, and biotech, remain private during key phases of their development.
Improve portfolio diversification
In a world where fixed income may no longer be sufficiently diversifying to risk assets, an allocation to private equity could help insulate portfolios against public equity market downturns.3
As investors consider the potential opportunities presented by private equity, it’s also important to understand the risks. Private equity is less liquid than its public counterpart, so investors need to consider their liquidity needs when evaluating whether to incorporate this asset class into their portfolios. What’s more, within this space, manager selection is paramount. The return dispersion between top-quartile and bottom-quartile private equity managers is significant at more than 12%.4 This means it’s critical to evaluate private equity managers’ stability, integrity, and ability to apply repeatable investment processes.
The bottom line
Private equity has moved beyond the institutional sphere. With greater access and a broader opportunity set today, investors may want to look closely at how private equity could fit into a diversified investment strategy.
1Diversification does not ensure a profit or guarantee against loss. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. There can be no assurance private equity funds will achieve higher returns than public equities.
2Jay R. Ritter, University of Florida, “Initial Public Offerings: Median Age of IPOs through 2025,” 31 December 2025.
3Scientific Infra & Private Assets, “Do private equities track public markets (and when)?,” November 2025.
4Nasdaq, “Asset Manager Selection Guide: Performance Dispersion Analysis,” 2025.
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Disclosures
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. There can be no assurance private equity funds will achieve higher returns than public equities. Private equity strategies are subject to different investment risks and are generally illiquid. They will experience equity-like volatility at times and are a portfolio of illiquid/private companies. The return of invested capital to limited partners is dependent on the success of the companies held in the portfolio, and the timing of such liquidity is uncertain.
For financial advisor and institutional use only. Not for use with the public. All investing involves risk. Diversification and active investment do not ensure profit or protection against losses. This is for educational and informational purposes only. Nothing herein constitutes investment advice or a recommendation and should not be relied upon as a basis for making an investment decision. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any security or instrument, or a solicitation of interest in any Wellington vehicle, account, or strategy. Opinions expressed reflect the opinions of the author(s) as of the date indicated and are based on the author’s opinions of the current market conditions, which is subject to change. Past events and trends are not necessarily indicative of future events or results. Forward-looking statements should not be considered as guarantees or predictions of future events. While any third-party data used is considered reliable, its accuracy is not guaranteed. This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management.