Essentials of Private Equity
Typically, investments in privately held companies, ranging from startups to large enterprises.
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INTRODUCTION TO Private Equity
Value Creation
Private equity managers have extensive value-creation capabilities, which they can use to unlock growth potential over time in the companies in which they invest. These efforts create the potential for a higher return, but investors must trade off some liquidity.
What is Private Equity? [ 5 ]
Private equity consists of investments in privately held companies, ranging from early-stage growth companies to large enterprises across every industry and geography. Private companies are a critical part of the global economy [ 1 ] and can take a longer-term orientation than the focus on share-price fluctuations of many public companies.
Private equity investors can help these businesses grow through active engagement and value creation strategies, including reshaping leadership, operations and financials.
Historically, return generation in private equity has been attractive, [ 3 ] and is derived from earnings growth and by exiting at opportune moments. Allocating to private equity can help investors access a broader opportunity set at a time when most businesses remain privately held—a share that continues to grow. Meanwhile, the S&P 500 has become increasingly concentrated, with the top 10 companies accounting for approximately 40% of the index’s market capitalization. [ 6 ]
Note: There can be no assurances that any of the trends described herein will continue or will not reverse. Past events and trends do not imply, predict, or guarantee, and are not necessarily indicative of, future events or results. Represents Blackstone’s view of the current market environment as of the date appearing on this material only. Additionally, investments in private equity are speculative and often include a higher degree of risk.
Investing for the Long Run
In exchange for making illiquid investments, investors can seek a higher return than they might achieve holding liquid equities. [ 8 ] Even with the rise of perpetual funds that permit periodic redemptions, private equity remains an asset class that aims to reward long-term investments. Historically, private equity has delivered meaningful long-term outperformance with less volatility versus public markets.
Private Equity Historical Outperformance of Public Equities
Growth of $100,000
Source: Cambridge Associates, as of June 30, 2025. Note: Growth of $100,000 based on cumulative returns from January 1, 2007, to June 30, 2025, in order to capture performance throughout the Global Financial Crisis. Past performance does not predict future returns. “Private Equity” is represented by the pooled returns of the blended Cambridge Private Equity Index which is comprised of buyout funds and growth equity funds. “Public Equities” are represented by the Cambridge Modified Public Market Equivalent (“PME”) analysis of the MSCI World Index. Comparisons of private equity performance to an index are therefore based on the difference in performance between Cambridge Private Equity Index IRR and the hypothetical PME return of the applicable public index. Hypothetical PME index performance may differ materially from the performance of such index during the same time period on account of the adjustments made for the timing of cash flows as per the PME analysis. Public Market Equivalent (“PME”) methodology replicates the date and amount of cash flows from Cambridge Private Equity Index capital calls or distributions in a public market index (i.e., Russell 2000, S&P 500). The hypothetical returns generated by these cash flows then track the public market index performance with the hypothetical PME NAV at the end of a given quarter used for the hypothetical PME Index IRR calculation. Comparisons of Cambridge Private Equity Index performance to an index is therefore based on the difference in performance between Cambridge Global Private Equity Index IRR and the hypothetical PME IRR of the applicable public index. Hypothetical PME index performance may differ materially from the performance of such index during the same time period on account of cash flow timing. Indices are provided for illustrative purposes only, and there are significant risks and limitations to relying on comparisons to an index, including the PME adjustments.
Index Comparison: The volatility and risk profile of the indices presented in this document is likely to be materially different from that of a fund. In addition, the indices employ different investment guidelines and criteria than a fund and do not employ leverage; as a result, the holdings in a fund and the liquidity of such holdings may differ significantly from the securities that comprise the indices. The indices are not subject to fees or expenses and it may not be possible to invest in the indices. A summary of the investment guidelines for the indices presented are available upon request. In the case of equity indices, performance of the indices reflects the reinvestment of dividends.
Index Definitions: Cambridge Associates US Buyout Index: This index is a horizon calculation based on data compiled from US buyout funds formed between 1986 and 2025; Cambridge Associates US Growth Equity Index: This index is a horizon calculation based on data compiled from US growth equity funds formed between 1986 and 2025; Cambridge Associates Private Equity Index: This index is a horizon calculation based on data compiled from US buyout and growth equity funds, formed between 1986 and 2025; MSCI World Index: The MSCI World Index captures large and mid-cap representation across 23 Developed Markets (DM) countries. With 1,320 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
Private Equity: A Core Allocation
Institutional investors have long made private equity a core part of their portfolios. Individual investor allocations to
private equity have historically been limited, but new investment structures, including perpetual funds, are increasing access to the asset class.
Representative Allocations to Private Equity
Note: There can be no assurance that any fund or investment will achieve its objectives or avoid substantial losses, or that alternative investments will generate higher yields than other investments. Past performance does not predict future returns. For US Family Offices: UBS Global Family Office Report 2025. For US Endowments: Preqin, as of June 30, 2025. For US Pensions: American Investment Council Retirement Security Report 2025. For Individual Investors, Cerulli Associates: U.S. Wealth Management and Alternative Product Trends 2024.
Value creation levers with potential to drive returns
Talent Management
Attract, develop, and retain top talent
Procurement Savings
Leverage global scale, buying power, and network to reduce costs
Brand Strategy
Strategic management of brands, products, and services
“Go-to-Market” Strategy
Identify areas of improvement to increase market share
Technological Innovation
Use advanced analytics to grow and build businesses
CASE STUDY
Buyout of a Leading Founder-Owned Submarine Sandwich Franchisor [ 9 ]
Investment Highlights
- We believe Jersey Mike’s is a differentiated brand with an experienced management team and loyal franchisee base
- Track record of proven execution capability coupled with the opportunity to expand the store footprint through a development pipeline of ~1,100 stores
Value Creation in Action
- Talent Management: Leveraged network to hire 5+ C-suite and executive team members, including Charlie Morrison, former CEO of Wingstop (NASDAQ: WING) who led their successful IPO [ 10 ]
Considerations Before Allocating
Ultimately, private market investing means active ownership of less liquid assets, as value creation takes time. Liquidity needs at the total portfolio level are one important consideration before allocating to private equity. In addition, manager selection may be of particular importance given the wider dispersion of returns compared to public markets. Key manager attributes include scale, staying power and a long track record.
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