Global private equity deal value rebounded to $2.6 trillion in 2025, fueled by pent-up demand after two sluggish years [1]. That's more capital deployed buying and selling companies than the GDP of France. Yet the average American has never invested a dollar in PE, and until recently, wasn't legally allowed to.
The industry has operated behind a velvet rope for decades: accredited investors only, million-dollar minimums, and decade-long lock-ups. That rope is fraying. The SEC loosened restrictions in late 2025, new platforms are accepting $10,000 checks, and the question has shifted from "what is private equity?" to "should I care?"
30-Second Summary: Private equity funds buy companies, improve them, and sell them for a profit. Top-quartile PE returned 24% annually over the last decade (vs. 15% for the S&P 500). The standard "2 and 20" fee structure takes nearly half of gross gains. Regular investors can now access PE through interval funds and platforms starting at $10,000.
How Private Equity Actually Works
A private equity firm raises a fund by collecting commitments from investors (called Limited Partners, or LPs). The firm itself is the General Partner (GP). The GP uses that pooled capital to buy companies that aren't publicly traded, improve their operations, revenue, or cost structure, and sell them 3-7 years later for a profit.
"Improve" can mean anything from hiring better management to restructuring debt to cutting costs aggressively. The most common criticism of PE is that "improvement" sometimes means layoffs, increased debt, and financial engineering rather than genuine operational value creation. Both versions exist. The returns data captures both.
There are three main strategies:
Buyout funds buy controlling stakes in mature companies. This is the most common type and where the largest PE firms (Blackstone, KKR, Apollo) focus. They're buying established businesses, not startups.
Venture capital funds invest in early-stage companies. Smaller checks, higher risk, occasional moonshots. VC is technically a subset of private equity, though the cultures and strategies are very different.
Growth equity sits between the two: investing in companies past the startup phase but not yet mature enough for a buyout.
The "2 and 20" Fee Math
Private equity charges two layers of fees, and the impact on your returns is larger than most people realize.
Meet Elena, age 42, a physician who commits $100,000 to a PE fund.
The fund uses the standard "2 and 20" fee structure: a 2% annual management fee on committed capital, and a 20% performance fee (called "carried interest" or just "carry") on profits above the investor's return of capital.
The fund runs for 5 years and doubles Elena's money (a 2.0x gross multiple).
| Step | Amount |
|---|
| Initial investment | $100,000 |
| Gross exit value (2.0x) | $200,000 |
| Management fees (2% × $100k × 5 years) | -$10,000 |
| Net profit after management fees | $90,000 |
| Carried interest (20% of $90k net profit) | -$18,000 |
| Total cash returned to Elena | $172,000 |
| Elena's net profit | $72,000 |
| Total fees paid | $28,000 |
Elena paid $28,000 in fees on a hundred-thousand-dollar investment. That's 28% of her original capital, or about 31% of her net gain. A long-term analysis from LCH Investments suggests that across the industry, fees have consumed roughly 49% of gross gains historically [2].
The good news: the industry is feeling pressure. Average management fees have compressed to 1.35%, and performance fees to approximately 16%, down from the traditional 2/20 [3]. The bad news: "average" includes funds you probably can't access. The most sought-after funds (Blackstone, KKR, Apollo) still charge close to the full 2/20 because they can.
Does Private Equity Actually Beat the Stock Market?
The honest answer: it depends on the time horizon, the fund, and how you measure it.
Over 10 years: Top-quartile buyout funds generated a 24% Internal Rate of Return (IRR), outperforming the S&P 500's 15% total shareholder return and the MSCI World Index's 13% [4].
In 2024 specifically: Even top-quartile global buyouts averaged just 8%, while the S&P 500 returned 18% and the MSCI World returned 22% [4]. Public market concentration in tech and AI stocks made it a historically bad year for PE relative to indices.
Hamilton Lane's analysis adds nuance: $1 invested in private equity in 2015 would have grown to $3.96 by 2024, versus $3.51 for the S&P 500 [5]. The outperformance is real but narrower than the headline IRR numbers suggest.
The critical caveat: you're comparing a liquid, daily-priced asset (an S&P 500 index fund like Vanguard's VOO) with an illiquid, manager-estimated-value asset (a PE fund). PE funds can smooth their reported returns by valuing holdings conservatively during downturns. The true "apples to apples" comparison is harder than either side admits.
In 13 of the last 16 years, the average hedge fund trailed the S&P 500 [6]. Private equity has a better record, but it's not immune to the same challenge: generating returns that justify illiquidity, high fees, and complexity.
Can Regular Investors Get In?
This is changing fast.
The Legal Barrier
To invest directly in a PE fund, you generally need to be an "accredited investor," which the SEC defines as having a net worth exceeding $1 million (excluding your primary residence) or annual income exceeding $200,000 ($300k for couples) [7].
About 18.5% of U.S. households now qualify, up from just 1.8% in 1983 [8]. The thresholds haven't been adjusted for inflation since 1982, which means the "exclusive" club gets larger every year without the rules technically changing.
The New Access Points
Interval funds are closed-end funds that periodically let you redeem a percentage of your shares (typically quarterly). They can invest in PE deals and are available to non-accredited investors. In late 2025, the SEC updated guidance (ADI 2025-16) to remove the old 15% cap on private fund investments for registered closed-end funds, expanding what these vehicles can hold [9].
Yieldstreet's Prism Fund accepts non-accredited investors with a $10,000 minimum [10]. It's a diversified alternative investment fund that includes private equity alongside private credit and real estate.
Moonfare offers access to top-tier PE funds with minimums around €10,000-€50,000, depending on the fund [11].
Publicly traded PE firms are the simplest option. You can buy shares of Blackstone (BX), KKR (KKR), or Apollo Global Management (APO) through any brokerage. You're investing in the management company's fee stream, not directly in their funds, but it gives you indirect exposure to the PE business model.
The median holding period for PE-backed companies reached 6.1 years in 2024, significantly longer than the traditional 3-5 year target [12]. Your money is locked up for a long time. Make sure you won't need it.
For how PE fits alongside other non-traditional investments, see our guide to hedge funds, which shares the same "2 and 20" ancestry but uses very different strategies. And to understand the basics of how different asset classes work together, our asset allocation guide covers the fundamentals.
Your Next Move
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Be honest about your liquidity needs. If there's any chance you'll need this money in the next 7-10 years, PE is wrong for you. This isn't a mild suggestion. It's the most important filter.
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Start with publicly traded PE firms. Buy shares of BX, KKR, or APO through your regular brokerage. Zero minimum beyond the share price. Full liquidity. You'll learn how the PE business model works while keeping your money accessible.
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If you qualify as accredited and have $25k+ to lock up: Research interval funds (like those offered by Apollo, Ares, or KKR) that invest in PE deals. Ask about the fund's redemption schedule, fee structure, and historical distributions.
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If you're not accredited but want exposure: Yieldstreet's Prism Fund ($10,000 minimum) or Fundrise's Innovation Fund offer diversified alternatives. Read the prospectus. Understand the liquidity terms. Don't skip this step.
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Run the fee math before committing. Use our compound interest calculator to compare a PE fund charging 2/20 (netting you roughly 70% of gross gains) against a low-cost S&P 500 index fund. The PE fund needs to generate significantly higher gross returns just to break even after fees.
References
- McKinsey & Company. (2026). Global Private Markets Report 2026: Clearer View, Tougher Terrain.
- LCH Investments. (2025). Annual Survey of the World's Top Hedge Funds (via Financial Times/IG Prime).
- Broadridge / BNP Paribas. (2025). Hedge Fund Fee Survey.
- McKinsey & Company. (2026). Global Private Markets Report 2026: Clearer View, Tougher Terrain.
- Hamilton Lane. (2025). 2025 Market Overview.
- RIABiz / Bloomberg. (2026). Hedge Fund Performance vs. S&P 500 Analysis.
- U.S. Securities and Exchange Commission. (2024). Accredited Investors Bulletin. Investor.gov.
- Congressional Research Service / SEC Staff. (2023). Review of the Accredited Investor Definition.
- U.S. Securities and Exchange Commission. (2025). Accounting and Disclosure Information (ADI) 2025-16.
- Yieldstreet. (2025). Yieldstreet Prism Fund Prospectus.
- Moonfare. (2023). Private Equity Fees Explained. Moonfare.com.
- Bain & Company. (2024). Global Private Equity Report 2024.
