Twenty years ago, in an “Entrepreneurship through Acquisition” class, the professor urged us: “This is your best time to take risk. Your opportunity cost will never be this low again.”
I was inspired — but what did I do? I joined a Fortune 500 company. Safe salary, stock options, the works.
Fast-forward to our 20-year reunion last month. Many classmates who chose the entrepreneurship route had built and sold companies and reinvested the proceeds back into private markets. Today, they are not just wealthy — they are actively shaping the next generation of startups as angel investors and venture partners, and generously sponsoring scholarships.
There, I realized the professor’s advice wasn’t just about career choices. It was about positioning yourself to access the investments where real wealth gets created. The real risk wasn’t launching a start-up; the real risk was limiting myself to public markets.
Welcome to why private markets still matter in 2025.
Fishing in a Shrinking Pond
If you’re like most investors, your portfolio is crammed with Magnificent Seven stocks and other household names—companies you can buy with a click, sell in a second, and price every nanosecond.
But here’s what you should know: you’re fishing in a shrinking pond. The number of listed U.S. companies has roughly halved to about 4,300 since the mid-1990s3. Meanwhile, privately held companies with 500 or more employees total about 10,5004. Today’s most innovative firms—from Anduril to xAI to whatever unicorn launches tomorrow—aren’t on any exchange you can access.
While we were accumulating shares in mature public businesses, an entire generation of wealth was being created in private markets—open only to those willing to trade liquidity for opportunity.
What Do the Numbers Say?
- Private equity has returned ~14 % a year for the past 20 years; global public equities ~7 %1.
- Even after a tech-fuelled public-market surge, U.S. buyout funds still outperform the S&P 500 in every rolling 10-year window5.
- Compound that gap over a career, and it’s the difference between a comfortable retirement and endowing scholarships—the Fortune 500 path versus the start-up path, played out across your entire portfolio..
But how those returns are generated has changed fundamentally.
The Death of Easy Money (and Why That’s Good)
Classic private-equity playbooks relied on three levers:
- Leverage (borrow cheaply to amplify returns)
- Multiple expansion (buy low, sell high)
- Operational improvements (build better businesses)
During the 2010s, the first two did most of the work: firms could borrow at ~3 %, buy at 7x earnings, change little, and flip at 10x. Financial engineering at its finest—or worst.
Those days are as dead as my 2005 flip phone. With higher rates and full valuations, Bain & Company warns that “generating alpha has never been more challenging.”6 Now, genuine value creation—operational excellence, tech enablement, global expansion—has to carry the load. I have seen promising systematic approaches to increase productivity employing AI.
Separating Tourists from Natives
My classmates’ start-ups didn’t succeed because start-ups were easy; they succeeded because start-ups were hard, and they did the hard work. Private equity is entering the same phase. Cheap leverage is gone; multiple expansion is uncertain; only managers who can build businesses will prosper.
Top-quartile funds don’t just beat public markets—they crush them. And unlike in public markets, where even Warren Buffett struggles to outpace the index, skilled PE managers can still harvest excess returns.
The Three Things You’re Really Buying
Private-market investing isn’t about edging the S&P 500 by a couple of points. It’s about accessing an entirely different opportunity set:
- Illiquidity premium — markets pay roughly 2–4 % a year for locking up capital7, rewarding patience in a hyper-liquid world.
- Control premium — PE owners don’t write open letters to underperforming CEOs; they replace them, reset strategy, and rebuild governance. It’s the difference between being a passenger and being the pilot.
- Access to the hidden economy — private firms—tomorrow’s giants—sit inside the 55 % of U.S. GDP that stays off exchanges2.
The 2025 Playbook
Should you consider private markets? Yes—but not for yesterday’s reasons. Leverage and simple multiple-arbitrage trades are passé. What remains is more compelling: exposure to the parts of the economy that are actually innovating.
Consider where transformative innovation is happening today:
- Artificial Intelligence: While public markets offer exposure to chip makers and cloud providers, the companies building next-generation AI models and applications remain largely private
- Energy Transition: Revolutionary clean energy technologies — from fusion power to advanced battery storage — are being developed by private companies years away from IPOs
- Space & Satellites: The new space economy is generating billions in revenue through private satellite constellations and launch services, invisible to public market investors
- Life Sciences: AI-powered drug discovery is cutting development time from decades to years, but most pioneers in this space aren’t publicly traded
- Defense Innovation: The modernization of defense technology is happening in private companies building autonomous systems and cyber capabilities
These sectors are generating real revenues and reshaping entire industries. They just happen to be doing it away from public markets. While public investors debate single-digit growth rates among mature companies, private markets are funding the technologies that will define the next decade.
Institutional investors model the way: 30 % of large LPs plan to increase private-equity allocations over the next year8. They’re not chasing past performance—they’re positioning for future transformation.
The Real Lesson from My Reunion
Leaving that reunion, I reflected on paths taken and chances missed. But here’s the kicker: it’s not too late. Friends who once chose the corporate route are now angel-investing, joining venture funds, or allocating to PE. In a world where everyone owns the same index funds, real differentiation comes from accessing what others can’t—or won’t.
The next 20 years of private-market opportunity are just beginning, and this time I’m not watching from the sidelines. Sometimes the biggest risk is playing it safe.
The views expressed in this article are solely my own and are for informational and educational purposes only. Nothing in this post should be construed as investment advice, a recommendation to buy or sell any security, or a solicitation to invest in any private market fund or strategy. Private market investments involve significant risks including total loss of capital, long lock-up periods, lack of liquidity, high fees, and are generally only suitable for sophisticated investors who can bear such risks. Past performance does not guarantee future results. Always consult with qualified financial, legal, and tax advisors before making any investment decisions.
Footnotes
1) Bain & Company, Global Private Equity Report 2025 (Returns section, Figure 31) — pooled net IRR for global buyout funds of ≈ 14 % per year over the past 20 years vs. ≈ 7 % for public-market equivalents (S&P 500 / MSCI World PME).
2) U.S. Chamber of Commerce — Small Business Data Center (6 Jun 2025): small businesses (< 500 employees) generate 43.5 % of U.S. business-sector GDP; Large Private Companies Impact Report 2024 adds > $3.1 trn (≈ 11 % of GDP) from firms with ≥ 500 employees. Together ≈ 55 %.
3) EQT Group, “Why Is the Stock Market Shrinking?” (2024) — U.S. listings fell from ~7,300 (1996) to ~4,300 (2024).
4) U.S. Chamber of Commerce, Large Private Companies Impact Report 2024 — 10,526 privately held firms with ≥ 500 employees (≈ 10,500).
5) FS Investments, “Private equity has historically outperformed public markets” (Chart of the Week, 14 Jun 2024).
6) Bain & Company, Private Equity Outlook 2025 — “Generating alpha has never been more challenging.”
7) Cambridge Associates, A Framework for Benchmarking Private Investments (2013) — typical illiquidity premium ~2–4 % over public markets.
8) McKinsey & Company, Global Private Markets Report 2025 — 30 % of LPs expect to increase PE allocations in the next 12 months.
