The Private Equity Trade Is Over

Two weeks ago, Starwood — one of the largest private real estate fund operators in the country — quietly told its investors they couldn’t have their money back.

Not “we’ll get it to you next quarter.” Not “there’s a small delay.” A full stop on redemptions from a $22 billion fund, with the official word being some version of “now is not the time to force sales.”

A few weeks before that, Blue Owl capped withdrawals from one of its big private credit funds at 5% of the fund’s value per quarter — after investors tried to pull out far more than that. Across the broader category of private real estate funds, roughly $30 billion is now locked up behind these so-called “gates” — about 40% of the entire market. Blackstone’s flagship private credit fund got hit with $3.8 billion in redemption requests in a single quarter — the biggest ever — and Blackstone had to inject $400 million of its own money just to keep the doors open.

I’m telling you all of this for one specific reason.

If you’re a solopreneur or small business owner who’s done well for yourself, somebody is about to pitch you private equity. Maybe they already have. Maybe it came dressed up as a “private credit fund,” an “alternative income strategy,” or an exclusive opportunity that’s “not available to most retail investors.”

I want to walk you through, plainly, why I think you should pass.

Why Wall Street Suddenly Wants You

For decades, private equity was a club. You needed tens of millions of dollars and the right phone number to get in. The institutions — pension funds, endowments, sovereign wealth funds — were the customers.

Those customers are leaving. Pension funds are pulling allocations. Endowments are sitting on stakes they can’t sell. The big institutional money that used to fight to get into these funds is now fighting to get out.

Which is exactly the moment Wall Street has decided it’s time to bring the rest of us in.

This isn’t a coincidence. When the smartest, best-informed buyers stop showing up, the product gets repackaged and marketed to the next tier of buyer. That’s not a conspiracy — it’s just how the business has always worked. And right now, that next tier is you: successful small business owners, professionals, doctors, founders who’ve sold a company. People with real money but without a $50M endowment’s research staff.

The Math Stopped Working

Here’s what most of these pitches won’t lead with.

In 2025, the average private equity buyout fund returned about 7%. The S&P 500 returned 18%. Global stocks returned 22%. That’s the third year in a row PE has lost to plain old public markets — and the gap isn’t small.

Zoom out further. Research published last year — “Has Private Equity Outperformed Public Equity?” in the Journal of Private Markets Investing — looked at the whole modern era of private equity and found that since 2006, PE returns have basically tracked the S&P 500. Not beaten it. Tracked it.

For roughly two decades of fees, lockups, and complexity, the typical investor has gotten an S&P 500-like return. Without the simplicity. Without the liquidity. Without the transparency.

The Accounting Trick That Made It All Look Smarter

There’s a reason private equity has felt like a better investment than it actually was. It’s something Cliff Asness — one of the most respected quants in the country — calls “volatility laundering.”

Here’s the simple version.

When you own a public stock, the price moves every second the market is open. You see the ups, you see the downs, you feel every twitch. The S&P 500 has had about 19% annual volatility since 1926. It is, mathematically, a bumpy ride.

When you own a private equity stake, you don’t get a real price. You get an estimate — quarterly, maybe — from the fund manager whose pay depends on the number looking good. Surprise: the number tends to look smooth. It almost never goes down 30% in a week, even when the equivalent public companies do.

Asness’s argument, which he’s been making louder every year, is that this smoothness isn’t real. It’s an accounting effect. The underlying businesses are at least as volatile as their public cousins — you’re just not allowed to see the volatility. Investors love the smoother ride so much that they may actually be paying a premium for it, accepting lower returns in exchange for not having to look at the bumps.

In other words: a chunk of what people thought was private equity’s edge was a magic trick.

Ben Felix — a portfolio manager whose Rational Reminder podcast is required listening in our office — makes a similar point with sharper teeth. Once you account for the fees (often 2% per year plus 20% of profits, versus 0.03% for a comparable index fund), the illiquidity (your money is locked up for years), and the inability to actually sell when you want to, the case for retail investors in private equity gets very thin, very fast.

What “Gated” Actually Means For You

The 2026 headlines about gated funds aren’t just a Wall Street story. They are the exact risk you’d be taking on personally if you wrote a check tomorrow.

When a fund gates, it means: you asked for your money, and the answer was no. You don’t know when you’ll get it. You don’t know how much you’ll get when you do. You can try to sell your stake on the secondary market, but recent tender offers for these funds have come in at 24% to 35% discounts to the official value the fund is still telling you the position is worth.

That gap between the “official” price and the “real” price is the magic trick wearing off in real time.

What I Tell My Clients

If you have built real wealth, you do not need private equity to keep growing it. You don’t need to be in the next sexy thing. You need to own a calm, diversified, tax-efficient portfolio of public investments that you can actually access when you need to — and a tax and retirement plan that protects what you’ve earned.

That’s not a thrilling pitch. It’s also the strategy with sixty years of evidence behind it.

If somebody you trust is currently pitching you a private equity or private credit fund — especially a non-traded one with a fancy name — please get a second opinion before you sign. The cost of a 30-minute phone call is a lot smaller than the cost of being locked into the wrong thing for the next seven years.

How I Can Help

I’m a fiduciary financial advisor based in Hermosa Beach, California, working specifically with solopreneurs and small business owners. I charge a flat fee, not a percentage of your assets, which means I have no incentive to sell you anything except the plain truth.

If you’re being pitched a private fund right now, or you’re already in one and wondering whether to sit tight, let’s get on a call before you make a move.

I’ll give you a straight, plain-English read on what you’re actually being offered — and whether it belongs anywhere near your money.

The smart money is heading for the exits. You don’t have to be the one buying their seat on the way out.

If you would like to discuss private equity further, click Book A Meeting.

Frequently Asked Questions About Private Equity

1. What is private equity and why is it suddenly being pitched to retail investors?

Private equity refers to funds that buy stakes in companies not traded on public exchanges. For decades it was a club — you needed tens of millions of dollars and the right connections to get in, and the customers were institutions like pension funds, endowments, and sovereign wealth funds. Those institutions are now pulling out. As institutional demand has fallen, private equity firms have repackaged the same products for the next tier of buyers: successful small business owners, doctors, professionals, and recently-exited founders. Wall Street's suddenly-open door isn't a coincidence — it's a marketing pivot.

2. Has private equity actually beaten the S&P 500?

Not recently — and arguably not for decades. In 2025, the average private equity buyout fund returned about 7%, versus 18% for the S&P 500 and 22% for global stocks. That was the third year in a row PE lost to public markets. Research published in the Journal of Private Markets Investing found that since 2006, PE returns have essentially tracked the S&P 500 — not beaten it. For roughly two decades of fees, lockups, and complexity, the typical investor has gotten an S&P 500-like return without the simplicity, liquidity, or transparency.

3. What does it mean when a private fund is "gated"?

When a fund gates, it means investors have asked for their money back and the answer is no — or "only some of it." In 2026, Starwood halted redemptions from a $22 billion private real estate fund entirely. Blue Owl capped withdrawals from one of its private credit funds at 5% of value per quarter. Blackstone's flagship private credit fund got hit with $3.8 billion in redemption requests in a single quarter and had to inject $400 million of its own money to keep operating. Roughly $30 billion — about 40% of the private real estate market — is now locked behind these gates.

4. What is private credit and how is it different from private equity?

Private credit funds lend money to companies outside the traditional banking system, then collect interest and principal payments. Private equity funds buy ownership stakes in those companies. Both are structured as illiquid, long-lockup vehicles with high fees, and both are now being marketed heavily to retail investors under names like "alternative income strategy" or "exclusive opportunity not available to most retail investors." The recent redemption gates have hit both categories, so the practical risk to an individual investor — money you can't access when you want it — is very similar.

5. What is "volatility laundering" and why does it matter?

Volatility laundering is a term popularized by quant Cliff Asness. Public stocks are priced every second the market is open, so investors see every drop. Private equity stakes are valued quarterly, with estimates from the fund manager whose compensation depends on the number looking good — so the reported values almost never fall as sharply as their public equivalents. Asness's argument is that this smoothness is an accounting effect, not a real reduction in risk. Investors love the smoother ride enough that they may actually pay a premium for it, accepting lower returns in exchange for not seeing the volatility.

6. What are the fees on a typical private equity fund?

The classic private equity fee structure is "2 and 20" — a 2% annual management fee plus 20% of profits above a threshold. Compare that to a comparable public index fund, which can cost as little as 0.03% per year. Over a 10- or 20-year investment horizon, that fee gap compounds into a very large number. When Ben Felix and other researchers do the honest math — accounting for the fees, the illiquidity (money locked up for years), and the inability to actually sell when you want to — the case for retail investors in private equity gets very thin, very fast.

7. Should individual investors invest in private equity?

For most solopreneurs and small business owners who've built real wealth, no. The historical return premium over public markets has largely disappeared, the fees are enormous compared to modern index funds, the money is locked up for years, and the recent wave of fund gating means "long-term investment" can become "money you can't touch at all" when the market turns. Retail investors should require a demonstrably better product to accept illiquidity and higher fees — and right now the data doesn't support the trade.

8. What should I do if I'm already being pitched a private equity or private credit fund?

Get a second opinion before you sign anything. Ask the person making the pitch three specific questions: (1) What is the total all-in fee, including management fee, incentive fee, and any layered fund-of-fund fees? (2) What are the exact redemption terms, and what happens if the fund gates? (3) What is the fund's current secondary-market price versus its stated "official" value — the gap tells you how much investors are willing to pay in reality (recent tender offers have come in at 24–35% discounts to stated value). A 30-minute call with a fiduciary advisor is a lot cheaper than being locked into the wrong thing for seven years.