Retail investors are finally gaining access to private equity—but many may be stepping into complex structures without fully understanding the risks. Fees can quietly erode returns. Liquidity can disappear precisely when it’s needed most. As private markets open up, careful and experienced navigation is more essential than ever.
For perspective, private markets have long been dominated by pension funds, endowments, sovereign wealth funds, and ultra-high-net-worth individuals. With trillions of dollars tied up in illiquid assets that private equity (PE) firms cannot currently exit or distribute, PE firms are seeking a new investor base. Increasingly, they’re setting their sights on retail investors.
And while PE firms want retail investors, retail investors also want access to PE. Why? With public markets no longer reliably trending upward, individuals are seeking both diversification and new sources of return.
There are sound reasons for retail investors to consider private equity. IPO activity has slowed dramatically, and many small-cap and growth companies now remain private longer. For investors seeking exposure to these dynamic businesses, private equity offers access that’s not readily available in the public markets. Buyout returns also tend to be more balanced, offering a potential hedge against the tech concentration risk prevalent in the S&P 500. Indeed, the promise of diversification is one of the main drivers behind the growth of retail capital in PE funds.
Private equity is also often marketed as a portfolio “smoother.” Since private holdings are valued less frequently than public equities, reported volatility appears lower. But this benefit deserves scrutiny. As Cliff Asness of AQR has argued, if public equity valuations fall, the true economic value of private holdings almost certainly declines too—even if reported marks lag behind.
The scale of investment is vast. Private assets—including private equity, venture capital, infrastructure, and private credit—have surged to $24 trillion globally, more than double the level a decade ago. With many institutional investors tapped out due to a lack of returned capital from aging investments, the industry is eager to “democratize” access by tapping into the $26 trillion in U.S. individual retirement and IRA accounts.
But true democratization requires transparency—and here, retail-focused PE can fall short. Some offerings promote fees “as low as 1%,” but that typically reflects only the vehicle-level fee. Layered beneath are substantial additional costs: overhead, research, travel, and sometimes even legal expenses related to fund litigation. In his recent paper Accessing Private Markets: What Does It Cost, Harvard’s Wayne Lim estimates total fees for private equity funds average 24% over a fund’s life, equating to an annualized fee impact of 7.9% for the average buyout fund. That’s a steep hurdle before an investor sees any net return.
The industry’s innovation around liquidity offers both promise and some lessons around peril:
- KKR and Capital Group have launched hybrid funds combining public and private assets, with $1,000 minimums and annual fees below 0.9% . These funds allow quarterly redemptions of up to 10% of assets—twice the norm for interval funds.
- Blackstone’s Real Estate Income Trust (BREIT) serves as a cautionary tale. Designed with periodic liquidity windows, in 2022 BREIT was forced to limit withdrawals after redemptions surged.
- Apollo and State Street have launched ETFs that invest no more than one-third in illiquid assets, aiming to blend public market liquidity with private return exposure.
So liquidity risk remains a major concern. According to Bain’s 2025 Global Private Equity Report, distributions fell to a decade-low 11% of fund net asset value, despite a partial recovery in deal activity. Without exits, PE funds struggle to return capital, exacerbating liquidity challenges.
In the end, there is a valid case for well-structured private market investments as part of a diversified portfolio. But retail investors—and their advisors—must tread carefully. Fee structures must be fully understood, liquidity risks honestly assessed, and return expectations recalibrated for today’s more challenging environment.
For those considering these investments, professional guidance is not just advisable—it’s essential.
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