Is Private Equity Worth It for Individual Investors After Fees, Lockups, and Risk?

Written by: Michael Finch, MBA, CPWA®, Col USAF (ret)

Private equity is often marketed as the "next level" of investing - exclusive, sophisticated, and capable of delivering superior returns. It's often positioned as something beyond the traditional stock-and-bond portfolio, reserved for institutions and the ultra-wealthy. If it's being marketed to us, we may feel like we're being given a special opportunity that most people don't have.

Therefore, as more individual investors gain access through new structures such as interval funds, it's worth stepping back and asking a critical question:

Does private equity actually deliver better outcomes — or just a more complicated experience?

Understanding the Aircraft You're Boarding

Private equity isn't a single investment — it's a category that includes several different strategies:

Buyout funds — acquire and restructure mature companies
Venture capital — invest in early-stage startups
Growth equity — fund expanding companies not yet ready for IPO
Distressed debt / special situations — invest in struggling businesses
Secondaries — purchase existing private equity fund stakes

Each has a different risk profile, timeline, and return profile. But they all share a few key characteristics:

May have more illiquidity
Often complex fee structures
Less transparency
More dependence on the manager's skill for a good outcome

The Pitch vs. The Reality

Private equity is often sold on three main promises:

Higher returns than public markets
Lower volatility (because prices aren't marked daily)
Access to unique opportunities

On the surface, that sounds compelling.

But when we dig into the data, the picture becomes less clear.

What the Research Actually Shows

A widely cited academic study¹, "The Performance of Private Equity Funds" (Kaplan & Schoar), found:

The average private equity fund roughly matched public market returns (after adjusting for risk and liquidity)
A small number of top-performing funds drove most of the outperformance
Persistence is weak, meaning it is extremely difficult to consistently identify top-performing managers in advance

More recent research² reinforces a critical takeaway:

"The data indicate the average or median PE funds do not actually outperform their PMEs since the Global Financial Crisis (2009.)"

Manager Dispersion

Average Returns

One of the most important - and often overlooked — realities of private equity is manager dispersion.

Data from J.P. Morgan's Guide to Alternatives³, shown in the above chart, highlights just how wide the range of outcomes can be. Over the 10-year period ending December 2025:

The median private equity manager outperformed large-cap managers by only about 1% annually
However, the spread between top and bottom managers was dramatically different

For private equity:

25th to 75th percentile dispersion = 19.5%

For large-cap stocks:

25th to 75th percentile performance dispersion = 2.6%

That's not a small difference - it's an entirely different investing experience.

Even more striking:

The 25th percentile private equity managers delivered just 1.3% annually over 10 years ending in December 2025.

This means a full quarter of private equity managers produced returns that barely outpaced cash - and in many cases likely lagged inflation.

In aviation terms, this is the difference between:

A system where outcomes are tightly grouped and more predictable over the long run
And one where results range from exceptional to pretty awful

Private equity doesn't just require picking a "good" investment - it requires picking a top-tier manager, in advance, consistently. Plus, you must have access to that top-tier manager.

And the data shows that's incredibly difficult to do.

The Fee Drag: A Hidden Headwind

Private equity fees are generally materially higher than traditional investments:

Management fees: ~1.5%–2.0% annually
Performance fees ("carry" ): ~20% of profits

That's not a small headwind - that's a structural drag.

Illiquidity: The Commitment You Can't Undo

Unlike publicly traded investments, private equity traditionally requires long-term commitments:

Capital may often be locked up for long periods (traditionally as high as 7–12 years, although new structures can help, but not necessarily eliminate this)
May have limited or no access to funds for lock-up period
Distributions are more unpredictable

In aviation terms, this is like taking off on a long mission with more limited ability to change course or land early.

The Illusion of Stability

Private equity portfolios often appear less volatile than public markets. But can be misleading, because assets are not priced daily and therefore volatility can appear to be smoothed. However, the underlying businesses still face economic cycles, operational risks, and market pressures.

In reality, the turbulence is still there - you just may not see it as often.

The Access Problem

Large institutional investors often outperform others in private equity because they:

Have established relationships with top-tier managers
Diversify across dozens of funds
Commit capital consistently over decades

Individual investors typically face:

Limited access to top funds
Higher fees
Less diversification

Which means the odds of capturing the best outcomes are significantly lower.

The Advisor Incentive Trap

There's also an important behavioral dynamic worth acknowledging.

Many advisors may feel pressured to differentiate themselves, especially when working with high-net-worth clients. Offering "access" to private equity can sound compelling and sophisticated.

But the reality is, access to private equity today is not particularly difficult. Many investors can gain exposure through various platforms and fund structures.

The more important question is not "Can we access it?" but rather: "Should we be using it in the first place?"

A good decision requires stepping back from the allure of complexity and asking whether the investment genuinely improves outcomes after fees, taxes, and liquidity constraints.

In many cases, the honest answer may be that private equity may serve the advisor's differentiation more than the client's long-term success.

So… Is Private Equity Worth It?

Private equity isn't inherently bad, but it may be oversold.

For most individual investors, the trade-offs are significant:

Higher complexity
Higher fees
Lower liquidity
More variance in performance

Meanwhile, a well-constructed portfolio of public equities and bonds may offer:

More transparency
More liquidity
Lower costs
Tighter dispersion in long-term results

Final Approach: Fly the Aircraft You Understand

In aviation, complexity doesn't always equal superiority. The best pilots succeed not because they chase the most advanced aircraft, but because they master the fundamentals, understand their systems, and execute consistently.

Investing is no different.

Before allocating to private equity, ask:

Do I fully understand how this investment works?
Am I being compensated for the additional risk and illiquidity?
Or am I simply being sold sophistication or is this really a good fit for me?

Because in many cases, the most reliable flight plan is still the one built on discipline, diversification, and simplicity.