Private equity has long sold itself as a source of stability. In a world of whipsawing public markets, it appears to offer smooth upward sloping returns. But this isn't stability. It's stale pricing.
That's the core argument from financial analyst Patrick Boyle. And the numbers tell a story that's hard to ignore.
The Quiet Crisis in Private Equity
This August, President Trump signed an executive order allowing private equity firms to tap into America's 401k system. The stated goal was democratization - letting retail investors play in the same sandbox as pension funds and sovereign wealth fund managers.
Nothing says democratization like handing your retirement savings to Apollo.
But here's the problem: the shares of publicly listed private equity firms are underperforming the broader stock market so badly this year that you'd expect a rally. Instead, the GLP index is down nearly 10% year to date, and it's even declined slightly since the August announcement. Apollo and Blue Owl are off more than 20% year to date. KKR, Aries, and TPG are all in double-digit decline. Only Carlile and ThreeI are outliers up more than the S&P.
The executive order was supposed to help. It didn't.
Why Private Equity Has No Tech Exposure
The S&P 500 is up around 14% this year if we include dividends, but it hasn't been a broad-based rally. The returns have been concentrated in a handful of tech giants - the Magnificent Seven minus Tesla plus Broadcom - which make up more than a third of the index.
These firms are growing earnings, throwing off cash, and doing it with less leverage than their predecessors in the dot-com era. Investors have been paying up for profitability and the market has been rewarding them.
Private equity doesn't own any of these companies and it doesn't own anything like them either.
PE firms tend to own smaller businesses often in slower growing sectors and usually with a lot more debt. The typical buyout fund is a leverage bet on small cap value stocks, the exact corner of the market that's been lagging. It's not unreasonable to expect private equity returns to rise and fall with the broader stock market adjusted for additional leverage.
But that relationship breaks down when the market is being driven by a narrow set of mega-cap tech stocks that private equity funds have no exposure to.
Where Returns Actually Come From
Private equity firms like to tell a story. It's a story about transformation, of taking sleepy underperforming companies and turning them into lean efficient high-growth machines through operational excellence.
This is the myth of operational alpha.
But the numbers tell a different story. Most returns in private equity come not from operational improvements but from leverage. A typical buyout is financed with 60 to 75% debt - significantly more than you'd find in a publicly listed company where debt-to-equity ratios tend to hover around 30%.
The people picking the companies to buy often have backgrounds in investment banking or consulting. Whether that qualifies them to run a plumbing supply company and whether they can run it better than its founder did is a separate question.
Bane's 2025 global private equity report shows that in the software business they buy out, margin growth has contributed just 6% to value creation over the last decade. The rest of the return came from revenue growth and multiple expansion.
Even when operational improvements are real, they're often overstated.
The Metric Problem
The industry's preferred performance metric since inception IRR is highly sensitive to the timing of cash flows and can be gamed through subscription lines and bridge loans. It's not a rate of return in any meaningful sense. It's a marketing number or the financial equivalent of Instagram filters - flattering but often nothing like reality.
Warren Buffett has long criticized the private equity model for this reason. At Berkshire Hathaway's 2019 meeting, he noted that investors in PE funds must hold cash on the sidelines ready to be called. That cash earns very little, especially during the zero interest rate environment of the time. But that doesn't show up in the IRR.
The result is a flattering returns number that ignores the real world cost of capital.
Consider a common tactic. A fund identifies a deal but delays calling capital from investors. Instead, they use a short-term loan to finance the acquisition. This shortens the measured holding period and inflates the IRR even though the underlying economics haven't changed. The fund looks like it's delivering a 25% return when in reality the investor's actual return accounting for idle cash and fees might be closer to 10%.
The Exit Problem
The IPO market has been dead for quite a while, and the kinds of companies sitting in private equity portfolios simply aren't what public investors are looking to invest in. Investors are not interested paying top dollar for slow growth businesses with heavy debt loads, and that's making it much harder for PE firms to exit cleanly.
Private equity is still sitting on trillions in assets, but the flywheel - raise, deploy, exit, distribute, and repeat - isn't spinning the way it used to. The push into 401ks looks less like innovation and more like a search for new investors when the existing ones are getting frustrated.
The backlog of unsold companies now exceeds $3.6 trillion across nearly 30,000 portfolio firms. Distributions have slowed to a crawl. Bane's report shows that distributions as a percentage of net asset value have fallen to 11% - the lowest rate in over a decade.
Continuation funds have stepped in to provide liquidity, but they're more accounting maneuvers than genuine exits. These vehicles allow a PE firm to sell an asset from one of its funds to another fund it also manages and charges fees on. The transaction resets the clock, generates a paper gain in the first fund, creating the appearance of a successful exit, but the asset hasn't changed hands in any meaningful way.
It's a bit like selling your house to yourself at a higher price and declaring a profit.
Bane's 2025 report notes that nearly 30% of companies in buyout portfolios have undergone some form of liquidity event including secondaries, dividend recapitalizations, and NAV loans without a true exit. These financial maneuvers generate cash flow and flattering metrics, but they don't necessarily reflect real value creation.
The smoothing of returns may help investors sleep at night, but it also obscures risk, conceals underperformance, and makes it harder to distinguish skill from luck.
Bottom Line
The strongest part of this argument is the case that private equity's "stability" is actually volatility laundering - a feature not a bug designed to obscure true performance. The biggest vulnerability is that the piece sometimes conflates criticism of metric manipulation with actual investment advice. Private equity funds still exist and some do deliver real value. But the gap between what's advertised and what's actually delivered has never been wider, and investors deserve to know the difference.