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The author is the co-head of KKR’s private equity
Opponents of private equity came into effect in 2025. Underlying the latest forecast for the end of the industry is a period characterized by high ratings, with many companies created by over-deploying cities in 2021 and the first half of 2022.
Many of these investments are likely to perform poorly. As a result, private equity funds that are overexposed to these vintages may struggle to raise more capital. But is that the beginning of the industry’s downfall as some claim?
Some investors have reduced their exposure to private equity, but they do so conservatively. The sale of some of the private equity profits from Yale’s Endowment Fund has been cited as a precursor to Doom. However, it argues that private equity is a core part of your investment strategy and does not reduce long-term target allocations. The reality is that demand remains strong, with high-performance funds continuing to take over.
Commentators have been predicting pessimism for years. In the face of these predictions, private equity has grown at an astonishing rate. According to Pitchbook data, managed assets have swelled from $700 million in 2005 to 6 tons today. For perspective, it is useful to look at how the open market is doing. The number of public US companies has shrunk by nearly 50% over the past 20 years. That’s an incredible decline.
Why do private equity thrive during a secular decline in the open market? Both businesses and investors simply prefer the private market. Many companies find it unworthy to focus on listing requirements complexity, short-term performance, and activist investors. Similarly, investors are drawn to the private market. They cherish the fact that private equity funds have the luxury of choosing companies, management teams, and operational strategies. And the creation of private equity value is often lies in broader market movements and uncorrelated operational improvements.
Investors are, of course, drawn to great financial returns. Private equity outperforms the most relevant benchmarks, the Russell 2000 or S&P 600, which tracks businesses of similar size to the majority owned by private equity. Private equity has surpassed more than 3% indices each year over the past five and ten years.
So why are there consistently disastrous predictions? Critics cheer for decline more than they predict it. In gentle terms, the underlying stories surrounding private equity are flattering. The stereotype is when private equity companies use excessive amounts of leverage, strip companies, use firefighters, and sell their works. Yes, private equity companies use leverage, but according to Pitchbook data, only half of the capital structure of private equity-owned companies is debt. Real estate transactions use far more leverage. There is essentially nothing evil about debt, but you need to be careful.
The industry is by no means perfect. There was a mistake. I can’t talk about the practices of all thousands of private equity companies, but the idea that all they do is workforce and strip assets is simply not true. Such strategies are logically self-destructive as private equity companies ultimately end their investments and buyers boost profits in the short term. The growth of the industry and the caliber of CEOs who are passionate about working with private equity companies suggest another reality.
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And this reality can be much bigger. Private equity governance model allows for rapid deployment of proven initiatives. For example, if a single private equity company decides to share ownership with workers, it could immediately affect hundreds of thousands of employees. And that may just be the beginning.
The private equity company portfolio is also an innovation hub for developing ways to improve the lives of workers, strengthen the corporate culture and provide even stronger returns. Supporting employee engagement, providing emergency support funds to workers, teaching financial literacy, and developing empathy for corporate leadership are just a few of the things we work on at KKR and others.
There is no doubt that the private equity industry will continue to grow. It only offers too many benefits. My hope for the industry is that one day there will be many benefits that will extend to workers. Not only can it impact millions of employees, it can also produce better results for investors. Who knows – it may even bring people who support us.
