Investors continue to raise their private markets allocations, and the evidence suggests good reasons for doing so. Headlines have focused on slower exits and on private equity trailing the largest public indices, yet a closer look at the data points to a more constructive picture. Five themes stand out that we believe explain the benefits of including, and in many cases increasing, private assets in a portfolio allocation.
1. Private Equity Can Diversify Portfolios
A core reason to include private assets is that they can offer a fundamentally different opportunity set than public markets. Public market indices are dominated by some very large companies. The median equity market capitalization is almost over $44 billion for the S&P 500 index and $1.2 billion for Russell 2000 Index; for the global private equity market, it’s a little bit over $300 million.1 These are small, innovative, fast-growing companies owned by private equity firms covering industries and geographies that, in our view, could provide sources of return that are either inaccessible through public markets or are represented lightly.
The types of companies you find in private markets look distinct from what's available publicly, which is part of what drives the diversification benefit. Although a lot has been made more recently about the tech exposure in private markets, its diversification offering spans sectors, industries, and sub-industries in a way that is quite distinct from the public market. Long story short: If you are building out a fully diversified portfolio, private markets can play a very important role.
2. Companies Are Staying Private for Longer
Some of the most important and exciting companies in the world can now stay private for decades because of the broad and deep private funding now available to them, something that previously wasn’t fathomable. That shift matters for investors: private market exposure allows investors to capture the returns generated by these companies early in their development. Some of these businesses have generated significant value while still private, entirely inaccessible to public market investors.
What’s more, since 2000, the number of public companies in the U.S. has fallen from roughly 8,000 to 5,500, while the number of private equity-owned companies has grown from under 2,000 to more than 13,000.2 Limiting a portfolio to public markets means excluding a growing share of the opportunity set.
3. Private Equity’s Performance vs. Public Markets
The comparison drawing much attention recently is private equity versus the S&P 500 index. While top-quartile private equity managers continued to outperform public markets, pooled private equity returns did trail the S&P 500 over the five- and 10-year time periods (see figure 1).
Figure 1
Global Private Equity vs. Public Markets Performance
Horizon Returns for Publicly Traded Indices vs. Private Equity on a Public Market Equivalent Basis.
Source: Private equity data from Burgiss. Represents pooled horizon IRR and first-quartile return for Global Private Equity as of 2026 Q1, which is the latest available. Public market data sourced from Neuberger as of 2026 Q1. For illustrative purposes only. The benchmark performance is presented for illustrative purposes only to show general trends in the market for the relevant periods shown. The investment objectives and strategies of the benchmarks may be different than the investment objectives and strategies of a particular private fund, and may have different risk and reward profiles. A variety of factors may cause this comparison to be an inaccurate benchmark for any particular type of fund and the benchmarks do not necessarily represent the actual investment strategy of a fund. It should not be assumed that any correlations to the benchmark based on historical returns would persist in the future. Indexes are unmanaged and are not available for direct investment.
One of the interesting developments of the public markets recently is how the S&P 500 has become less diversified. Its recent strong returns have been driven by a small group of companies, concentrated in the AI space: the top 10 S&P 500 companies make up 38% of the index’s market capitalization,3 up from just 16% in 1990, and were responsible for about 53% of the index’s year-to-date performance.4 Most major banks don’t expect the current performance of public markets to be sustainable, with consensus 10-year expected annual returns closer to 5 – 7%.5
When looking at the European public markets, where indices did not benefit as much from the large companies related to the AI trade, European buyout returns outperformed the MSCI Europe Index over five, 10 and 20 years.6
However, globally, two things become apparent. First, buyout returns still compounded in the mid-teens over five and 10 years, including with the challenging 2021 vintage investments; evidence of the durability in private equity returns that comes from less reliance on market swings and more reliance on the value created inside the companies themselves. Second, the larger spread between the average PE returns and top quartile compared to most other asset classes emphasizes the importance of manager selection and the ability of top-quartile managers to outperform even when public markets produce strong returns.
4. The Distribution Gap Will Narrow, Not Close
Despite commentary about the lack of private equity exits, 2025 was actually a strong year for exits with more than 4,000 companies exiting at a combined value of about $1.3 trillion.7 The negative headlines reflect the large backlog built up during three very tough years, 2022 through 2024, not last year’s results. Cash distributions relative to total portfolio value averaged 23.4% since 2007, fell to 11 – 12% during that difficult stretch, and have since recovered to just above 15%.
With the current environment, we believe firms will need more time to implement strategic and operating improvements to achieve return targets. In our view, over time, the average company is going to be held closer to five to six years, which means we see distributions potentially adjusting back to the high teens, and not recovering to the 23.5% average, driven by a less benign economic and market environment. Going forward, we believe PE firms will need to rely less on low rates and increasing valuations and more on what they can do for businesses to generate value.
We focus on private equity partners who are not reliant on increasing valuations and market appreciation to generate returns, but earnings growth. If you can double the earnings of a company over a four- to six-year period, even if valuation multiples decline, one can still generate strong returns. We still believe this is a valuable source of returns for investors.
5. AI Adoption Can Be Transformative
Much has been made of AI's potential to disrupt private markets, particularly for software-focused investors. These concerns are valid, but the best PE firms are investing in AI resources not only to navigate these risks, but to give portfolio companies an edge over competitors. In a 2025 survey of Neuberger's GP partners, 90% said portfolio companies were meeting or exceeding expectations around AI’s ability to grow margins and maximize cost efficiency, and 71% said the same for AI-driven revenue growth. That advantage stems from scale: sponsors can invest in AI resources across their portfolios in ways that small and mid-market companies often cannot afford on their own.
Conclusion
Taken together, these five themes show how private markets can contribute meaningfully to portfolio construction. Allocations designed around the role of each asset can improve diversification, public index returns have been unusually concentrated in a few AI-related companies, exits are recovering, and AI adoption is supporting portfolio companies. Private capital is entering the next stage of its life cycle, more mature and more accountable, with opportunities that reward careful manager selection. Periods of uncertainty often create the most compelling investment opportunities, and we believe these themes support a meaningful place for private markets in a portfolio allocation.
Tony Tutrone recently had an opinion article published in Private Equity International. To read the full article “Private Capital’s Coming of Age”, click here:
