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David Crawford, Partner
dcrawford@hugessen.com
Private Equity: Falling Short, but Looming Large
As we look back on 2025 and ahead to 2026, private markets sit at a crossroads: private equity may be facing more performance and structural scrutiny than at any point in the last decade, yet its continued influence on capital and talent markets has arguably never been greater.
In theory, private equity should deliver a return premium over public equities across cycles. But over the last several years, public markets, especially large-cap U.S. equities, have been difficult to beat; while many private equity portfolios have had to contend with a combination of slower exits, higher financing costs, and the practical realities of valuing illiquid assets. The result is a growing gap between what many investors expect from private equity and what many funds have recently been able to deliver.
And yet, the influence of private equity (and credit) is larger than ever. If we look at publicly traded company CEO pay, the high-water mark pay levels among the major US banks (e.g., Goldman, Morgan Stanley, JPMorgan, Bank of America) have been dwarfed by that of private equity CEOs (e.g., Blackstone, KKR, Apollo). It is also notable that BlackRock CEO Larry Fink has received a carried‑interest allocation tied to BlackRock’s flagship private markets funds - a leverage incentive on a small piece of what the CEO oversees. The influence can also be observed in law firms and banks, as those servicing private equity (and credit) rise in prominence.
The traditional approach - raising a fund, investing, harvesting returns, and giving capital back- is facing competition from evergreen structures and continuation vehicles. These alternatives offer more flexible portfolio management options, letting investors redeem or increase their investments as needed. This flexibility frequently depends on net asset values, with a significant portion of returns derived from the private valuation of assets rather than from realised transactions. In other words, “realized” and “realizable” economics can begin to carry similar weight. It is noteworthy that many Pension funds and co-investment approaches have had a net asset value approach for some time.
We are seeing incentive structures adapt accordingly, with carry-like economics tied more explicitly to valuation high-water marks. In some cases, fees and incentive sharing ratios are consistent with the standard “2 and 20”; in other cases, they are much lower with less drawdowns and capital raise cycles and competition from passive investments. There can be challenges to linking pay to high‑water marks set over short periods (e.g., quarterly or annual), where the return may be unrealized and valuation‑dependent. The key question for boards, investors and management teams: What performance are we paying for, and how do we want to measure it when liquidity is less frequent?
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