Unlocking Private Equity Investing

Myths and market shifts to take note of.

Private equity or PE, once a niche strategy, is now firmly established as a core pillar of global finance. Forecasts suggest that by 2029, it will remain the largest private capital asset class, with assets under management (AUM) projected to reach US$12 trillion.¹

However, PE remains a misunderstood asset class, shaped by persistent myths around transparency, liquidity, and the assumption that past returns guarantee future results. In this article, we aim to clarify some of these misconceptions.

We also explore the influence of institutional investors such as Yale University and its pioneering endowment strategies, which helped propel PE into the mainstream. And we examine the recent record transaction volume in the secondary market, which may signal a rethinking of the long-held wisdom behind the Yale Model and its focus on long-term illiquidity. By considering recent regulatory shifts, market corrections, and real-world case studies, we aim to equip investors with a clearer and more realistic view of what to expect in today’s PE landscape.

COMMON MYTHS IN PE INVESTING 

Myth 1: All PE firms and their portfolio companies lack transparency 

PE firms and their privately-held portfolio companies are often perceived as opaque, primarily because they are subject to fewer mandatory disclosure requirements than public companies, which must publish financials quarterly. Unlike publicly-traded firms, many PE-backed businesses provide only limited voluntary disclosures, often on an ad hoc basis. Their complex and non-standardised structures can further obscure understanding, while valuations frequently rely on internal estimates and assumptions.

That said, transparency levels in PE vary widely. Reputable and well-managed firms often prioritise investor trust and long-term relationships. They may provide detailed financial reports, regular fund updates, and independent third-party audits to validate performance and valuations.

Regulatory and industry-led initiatives are also promoting greater transparency in private markets. For example, the US Corporate Transparency Act (CTA), effective January 1, 2024,² requires non-exempt US entities, including some PE portfolio companies, to disclose beneficial ownership details to the Financial Crimes Enforcement Network (FinCEN). The Institutional Limited Partners Association (ILPA) has proposed standardised reporting templates to help investors, especially smaller ones, compare fund performance more consistently. In the European Union, the Alternative Investment Fund Managers Directive (AIFMD) mandates that alternative investment fund managers (AIFMs) operating in the EU submit regular reports to national regulators, including financial statements, fund activities, and even fund staff remuneration data.

Despite these efforts, PE remains less regulated than public markets. Investors may benefit from remaining mindful that PE investments are typically long-term, illiquid, and carry inherently higher risks. One notable concern is survivorship bias: only successful funds tend to persist, raise new capital, and voluntarily disclose performance, while underperforming funds often fade quietly from view. This creates the illusion of uniformly strong industry performance.

New semi-liquid or evergreen fund structures introduce additional complexity. While they offer partial liquidity through periodic redemptions, investors often face challenges in accessing detailed information on underlying holdings or deal sourcing. As a result, these vehicles may appear more transparent than they actually are.

Myth 2: Past high returns guarantee future high returns 

Some investors assume that past or forecasted earnings are reliable indicators of future performance. However, actual returns in PE can vary widely. While a strong track record may reflect effective fund management by a general partner (GP), it does not ensure that similar results will be achieved by future funds, even if these will be led by the same GP. Performance fluctuations are influenced by a range of factors, including market volatility, competition, valuation challenges, and survivorship bias.

This myth is often perpetuated by a mix of systemic risks, behavioural biases, and unsustainable investment strategies. Systematic risk, the type of undiversifiable risk tied to market-wide shocks, can derail exit strategies or portfolio performance, even in diversified funds. Cognitive biases may lead GPs to adopt overly optimistic assumptions when valuing portfolio companies, resulting in inflated projections. And as mentioned above, survivorship bias can create a misleading picture of industry-wide success when underperforming funds quietly disappear from view.

To deliver strong short-term performance, some PE firms may also engage in aggressive cost-cutting or high leverage. While these tactics can temporarily boost returns, they may compromise long-term innovation and financial resilience. Additionally, excessive leverage in leveraged buyouts (LBOs) can amplify the risk of distress or bankruptcy, especially in turbulent markets.

These risks are well-illustrated by the case of SoftBank’s investment in WeWork (refer to box story).

In summary, while PE investments offer the potential for strong returns, they are not immune to structural risks, or cognitive traps. Investors may benefit from conducting careful due diligence and staying informed about regulatory developments, market cycles, and the evolving risk landscape of this asset class.

Myth 3: Committed capital is locked up for the entire life of the fund 

A common concern among investors is that capital is tied up in a PE fund for a full 10 years. While most funds have a contractual life of a decade (often extendable by one to two years), distributions typically accelerate after five to seven years, once portfolio exits begin. Illiquidity concerns are further amplified by the nature of private holdings, which are appraised infrequently and based on internal valuations and estimates, rather than real-time market prices. Additionally, the timing of exits depends on prevailing market conditions, thus aggravating investors’ liquidity concerns.

While PE investments are undeniably long-term and illiquid, investors may consider several mechanisms to mitigate this illiquidity. First, cash distributions could provide partial liquidity over time.

As portfolio companies are exited, investors begin to receive cash flows. A key metric in this context is Distributions to Paid-In Capital (DPI), which reflects the amount of capital returned to investors relative to the total capital invested.

Second, some PE fund managers have introduced newer semi-liquid or evergreen structures, such as Partners Group’s Global Value SICAV, K-Prime by KKR, BXPE by Blackstone, and Nexus by EQT. These vehicles offer periodic redemption windows, sometimes after shorter lock-ups of one to two years, thereby offering greater liquidity. However, they usually offer lower expected returns in exchange for this enhanced liquidity ‘option’ provided by the periodic redemptions, compared to the traditional lock-up PE fund structure. Transparency challenges may remain, as investors may receive limited disclosure on portfolio holdings or deal sourcing, raising questions about how liquidity is generated.

And finally, investors may also exit PE positions before a fund matures by selling their stakes on the secondaries market.

SECONDARIES MARKET 

The secondaries market helps new investors bypass blind pool risk, which is the risk of committing capital without knowing how it will be deployed, since they invest in existing assets rather than committing capital before fund deployment. As portfolio companies have already been held and developed by the original fund, investing through secondaries may shorten the investment period for secondaries investors (buyers),³ and the investment horizon before receiving cash returns may shrink from seven to 10 years (in primary funds) to as short as three to four years.

There are two main types of secondaries: LP (limited partner)-led and GP-led. In LP-led transactions, a new LP acquires the interest of an existing LP, typically at a discount to net asset value (NAV). This provides the original selling investor with early liquidity to exit before the fund’s maturity, but often at a cost, while allowing the buyer to invest in seasoned assets. In GP-led transactions, the GP initiates the process. A common example is the creation of a continuation fund after the original PE fund reaches its tenure. The GP transfers select portfolio companies from an expiring fund into a new vehicle, extending its management horizon. These GP-led deals tend to price more tightly than LP-led sales. While providing liquidity for existing investors, they raise concerns around potential conflicts of interest, such as whether the continuation fund represents the best exit option and fair valuation for the existing LPs. Pricing contrasts between LP-led and GP-led deals are further complicated by classification issues. Some semi-liquid fund exits are reported as LP-led transactions, which can obscure the true gap between the two categories. In addition, when PE firms recycle assets into their own semi-liquid vehicles, transparency concerns intensify, as investors may lack clear visibility into valuation methods and deal sourcing.

In 2024, global secondaries transaction volume reached a record of US$162 billion, surpassing the previous high of US$134 billion set in 2021, and reflecting its growing role in providing liquidity to PE investors.^4,5,6,7 While this growth highlights increasing investor participation, the secondaries market is shaped by economic conditions, market sentiment, pricing discounts, and liquidity demand. During periods of market stress, discounts can widen sharply. For example, in the LP-led secondaries market, venture capital (VC) funds during 2021-23 often traded at steep discounts to NAV (from 88 percent in 2021 to 68 percent in 2022 and 2023 in portfolio pricing as a percentage of NAV).⁸ In contrast, discounts narrowed in 2024, driven by a rise in GP-led continuation funds and consolidation among sellers. Some PE firms are increasingly selling stakes into their own continuation or semi-liquid vehicles, which raises potential concerns over valuation objectivity and transparency. Because NAVs are largely appraisal-based, they may be subject to overstatement, making it imperative for investors to rigorously assess market conditions, the underlying asset quality, and transaction structure before committing capital to secondaries.

Although secondaries offer liquidity and a shorter investment horizon, they also involve trade-offs. Transactions often occur at a discount, especially during periods of market stress. Besides, new buyers, while benefitting from investing in seasoned assets with greater visibility and possibly a discount, may also inherit legacy risks such as overleveraged or underperforming companies from the original fund. Additionally, the growing popularity of secondaries might lead to increased competition, narrowing discounts and compressing potential returns.

In general, secondary transactions may offer the potential for attractive returns within a shorter investment horizon to investors, while also providing them with earlier access to liquidity, compared to primary PE commitments. However, it is important for investors to carefully evaluate transaction structure, pricing, asset quality, and broader market conditions before committing capital. After all, there is ongoing debate over whether NAVs truly reflect the underlying economic value of portfolio companies, as NAVs are typically appraisal-based and prone to overstatement.

When giants blink: The endowment record sell-off 

The recent surge in secondary market activity has seen growing participation from US university endowments. Institutions such as Harvard and Yale have reportedly explored selling portions of their PE portfolios to improve liquidity and rebalance asset allocations. In April 2025, Bloomberg reported that Harvard was in advanced talks to sell around US$1 billion in fund stakes,⁹ while Reuters¹⁰ and Yale Daily News¹¹ noted that Yale was considering a transaction that could reach US$6 billion. More recently, Brown University and Northwestern University have also been reported to be exploring similar options.¹² While many of these discussions are ongoing and not yet finalised, they highlight a broader trend: even traditionally long-term investors are increasingly turning to the secondary market as a tool for portfolio management.

It is particularly noteworthy that Yale, a pioneer of long-term illiquidity, appears to be reconsidering parts of its approach. The “Yale Model” (or “Endowment Model”) was developed by Dr David Swensen, who served as Yale University’s Chief Investment Officer (CIO) from 1985 to 2021, alongside his long-term deputy Dean Takahashi and the broader team at the Yale Investments Office. The “Yale Model” reshaped institutional investment strategy by emphasising illiquid alternatives such as PE, VC, hedge funds, and real assets over traditional stock-bond portfolios. As of June 30, 2020, Yale’s endowment had achieved a 35-year annualised return of 13.1 percent, far outpacing conventional benchmarks. Yale’s endowment grew from approximately US$1.3 billion in 1985 to US$42.3 billion by the end of fiscal year 2021, while contributing billions to support the university’s operations.¹³ The model’s success was grounded in principles of diversification, equity-based long-term growth, and high-conviction investments. Swensen’s long-term commitment to PE demonstrated its potential for superior returns, influencing other endowments, pension funds, and sovereign wealth funds worldwide to allocate capital to this asset class. That commitment has been tested in recent years by dramatic developments in the PE industry, particularly those arising from financial market volatility, liquidity constraints, and macroeconomic uncertainty. The decision by some endowments to offload PE holdings may mark not a rejection of the model, but a practical response to the evolving investment landscape.

Forces triggering the selling 

Several interrelated factors have contributed to this wave of selling. First, when public markets declined sharply in 2022, the relative weight of private assets in portfolios rose – not because private valuations increased, but because public assets shrank more rapidly. This left some endowments over-allocated to illiquid assets, potentially breaching internal guidelines or strategic thresholds. This is referred to as “the Denominator Effect”. Second, even as exit markets stalled, PE and VC funds continued to draw down committed capital. With cash inflows slowing and outflows persisting, institutions faced a rising liquidity squeeze. This led some to consider selling fund interests in the secondary market or encouraging earlier exits from portfolio companies. Third, the slowdown in IPOs and M&A (mergers and acquisitions) activity limited opportunities to recycle capital. With traditional exit routes stalled, LPs struggled to recycle capital back into new commitments or fund operational needs. Finally, some endowments used the disruption as an opportunity to reassess their exposure to private markets and rebalance portfolios more strategically.

The secondary market provided a release valve, but at a cost. With more sellers than buyers, particularly in VC and older vintage funds, transactions often closed at steep discounts to NAV, with sellers sometimes accepting discounts of up to 30 percent. For many institutions, however, these discounts were worth accepting in exchange for certainty, liquidity, and balance sheet clarity. This surge in institutional activity helped propel global PE secondaries to a record US$162 billion in 2024, surpassing the previous peak in 2021. Most of the volume came from LP-led transactions, where existing investors offloaded stakes to secondary buyers such as Ardian, Coller Capital, and Lexington Partners. These buyers, armed with dry powder and sophisticated underwriting tools, capitalised on the opportunity to acquire seasoned assets at a discount.

Temporary adjustment? Or long-term shift?

While some observers interpreted these moves as signs of financial distress, they increasingly reflect a more proactive and sophisticated approach to managing illiquid assets in private markets. The traditional ‘buy-and-hold’ mindset or ‘set-it-and-forget-it’ approach is giving way to active liquidity management, pacing strategies, and a greater willingness to use the secondaries market as a portfolio optimisation tool.

These dynamics are also reshaping the secondaries market itself. Buyers now seek greater transparency and more granular asset-level data. Innovative structures such as NAV-based lending, deferred payment mechanisms, and preferred equity have gained popularity, enabling sellers to access capital without outright disposals when appropriate. Notably, in 2024, approximately 50 percent of the LP-led transactions utilised deferred structures.¹⁴

Compounding these financial considerations are broader geopolitical and policy uncertainties. The Israel-Hamas conflict in late 2023 introduced new regional risks, especially for VC funds with Israeli exposure. Meanwhile, the return of Donald Trump to the US presidency in 2024 reignited debates over endowment taxation, higher-education funding, and regulation of alternative investments. In response, some institutions have opted to de-risk portfolios and prepare for greater fiscal unpredictability.

These developments do not signal a rejection of the endowment model but rather an evolution in how long-term investing is being practised in a more complex environment. Illiquidity still offers potential rewards, but it also creates real constraints especially when distributions stall, capital calls persist, and external shocks disrupt assumptions.

For both institutional and individual investors, the message is clear: effective liquidity management has become a proactive necessity in private equity investing. The fundamentals of the asset class remain attractive, but success increasingly hinges on flexibility, disciplined pacing, and the strategic use of secondary markets.

PRACTICAL GUIDANCE FOR TODAY’S INVESTORS 

Despite its risks, PE could enhance portfolio diversification and deliver attractive long-term returns. However, investors need to approach PE with a clear understanding of both its unique advantages and inherent challenges. Like other alternative asset classes, PE is illiquid, long-term in nature, and requires careful due diligence and strategic planning.

From an investor’s perspective, the following considerations are essential when evaluating PE opportunities.

Due diligence 

Conduct independent research before selecting a PE fund. Review historical performance, assess the management team’s experience and credibility, and evaluate the assumptions used in valuation models. While a strong track record may indicate competence, it does not guarantee future results. It is also helpful to examine the fund’s structure, investment process, strategy for value creation, and any ESG (Environmental, Social, and Governance) integration.

Diversification strategy 

PE should form part of a broader, well-diversified portfolio rather than being the sole focus. Investors can diversify across asset classes, industries, and geographies of their fund holdings to mitigate event-specific risks such as economic downturns. Staggering commitments across different vintage years – the years in which funds are launched – can also help manage market cycle exposure. Still, diversification alone does not eliminate systematic risks.

Fee structures and liquidity constraints 

Understand the impact of management fees and carried interest on net returns. Before committing capital, evaluate the minimum investment thresholds and liquidity terms – typically 10 years or more – which requires investors to be comfortable with long-term capital lock-up and limited redemption flexibility.

Scenario analysis and expert guidance 

Model different economic conditions, such as downturns, inflation spikes, or rising interest rates, to stress-test the potential resilience of PE investing. Seeking advice from independent financial professionals or seasoned industry experts can also provide valuable insights and help inform a more realistic risk-return assessment.

Alternative access: publicly-listed PE firms 

For investors without direct access to PE funds, investing in publicly-listed PE firms offers a way to gain partial, indirect exposure. This approach might offer greater liquidity and accessibility than direct PE investments. However, it comes with caveats: returns are derived typically from the publicly-listed PE firm’s management fees, carried interest, and their own capital invested in underlying portfolio companies (‘skin in the game’), and not directly or entirely from portfolio company performance. Moreover, publicly-listed PE firms often span multiple asset classes beyond PE, such as real estate, private credit, and hedge funds, so investors may be exposed to other risks. Publicly-listed PE firms are also subject to market fluctuations, leading to potentially higher short-term volatility compared to traditional PE fund investments, which typically follow longer investment horizons with less frequent valuations. These vehicles, although public, often provide limited transparency into underlying portfolio holdings than direct PE funds and allow minimal investor influence over specific investment decisions.

Correlation with public markets 

While PE returns may appear less correlated with public markets in the short term – due to appraisal-based valuations and quarterly reporting (appraisal smoothed data) – over longer periods, PE performance is still shaped by broader macroeconomic forces such as GDP (gross domestic product) growth, interest rate trends, and business cycles. As such, investors should not assume PE is a hedge against all public market volatility.

FINAL THOUGHTS: GLOBAL INSIGHTS AND LOCAL IMPLICATIONS 

PE may offer the potential for attractive long-term growth, but it also brings significant complexity and risk. Successfully navigating this asset class requires a deep understanding of fund structures, valuation approaches, fee arrangements, liquidity constraints, and broader macroeconomic forces. Investors must also grapple with persistent myths, shifting market dynamics, and evolving regulatory frameworks. Recent developments have brought renewed attention to issues of transparency, liquidity, secondary markets, and institutional portfolio shifts.

The recent liquidity-driven rebalancing among US university endowments and other investors, such as large pension funds, has sparked global interest. In Singapore and across Asia Pacific, institutional investors – including sovereign wealth funds, pension managers, and family offices – are taking note as they expand their exposure to alternative assets. While these investors may not face the same constraints as their US counterparts, the lessons surrounding liquidity preparedness, disciplined pacing, and secondaries strategy are increasingly relevant. Singapore’s GIC and Temasek, for instance, continue to emphasise flexibility and proactive portfolio construction, even as they deepen their commitments to private markets. Across the region, investors are becoming more engaged participants in the secondary market, both as buyers seeking opportunities and as sellers looking to optimise fund cycles and sector exposures.

Ultimately, the takeaway is universal: while PE is inherently long-term, it demands a mindset that balances curiosity with caution. Effective liquidity planning, regular portfolio rebalancing, and realistic return expectations should complement the pursuit of growth and alpha generation. Those who approach PE with discipline, adaptability, and a commitment to continuous learning will be best positioned to harness its full potential within a resilient, well-balanced portfolio.

Dr Yin Wang 
is Assistant Professor of Accounting and Co-Director of MSc in Accounting (Data & Analytics) at the School of Accountancy, Singapore Management University 

Steve Balaban, CFA 
is Chief Investment Officer of Mink Capital, Chief Learning Officer of Mink Learning, and Associate Professor-Teaching Stream at the University of Waterloo, Canada. He is also a contributing author on PE for the CFA Program 

This article is the second in a two-part series on PE investing. Part 1, titled ‘Unlocking Private Equity Investing: A Primer’, was published in the July 2025 issue of Asian Management Insights. Read the article here.

For a list of references to this article, please click here.