Independent Thinking®
Buying, Building and Selling: Investing in Private Equity
June 18, 2025
Companies backed by private equity in the United States now outnumber publicly traded companies by two-and-a-half times, a 400% increase since 2000.1 They represent the fastest-growing sectors of the market, generating many technologies, products and services that investors cannot access in the public markets. What’s more, private companies have outperformed publicly traded companies in 97 of the last 100 quarters, on a 10-year rolling return basis.2
For many qualified investors, private equity is now the most exciting asset class.
The concept hasn’t changed much in 25 years. Private equity firms raise capital from outside investors and use it to buy companies with the goal of increasing their value and, eventually, realizing a profit. This process often involves expansion or restructuring, improving operations, strengthening management, and supporting companies through periods of stress.
What has changed is the scale of the investment set. Options range from very early-stage companies developing new products or technologies, to investing now in established businesses that need capital for expansion or operational improvements. Of the U.S. companies with annual revenues over $100 million, 86% are still private.3 Not surprisingly, they are in no rush to list. As private capital ecosystems continue to grow and strengthen, these companies can stay private for longer.
Two areas of private equity appear particularly attractive at present. The first – buyouts – are investments in established businesses with stable cash flows to implement operational improvements, expand to new products or geographies, eliminate unnecessary processes or costs, or to make add-on acquisitions. Buyouts acquire controlling and/or majority stakes and typically use larger amounts of debts. The second – growth equity – is made up of companies with proven business models that experience high growth rates or pivotal change, along with some recurring revenues. Growth equity investments are typically minority ownership stakes using little or no debt.
Private equity buyout managers have adjusted to higher interest rates and the higher cost of capital by reducing the amount of leverage. The market corrections over the last few years have forced companies to balance between growth and profitability, making this a compelling time to invest new capital.
Growth equity valuations have fallen by more than half from their 2021 peak, as initially overly eager investors came to realize that valuations should always reflect the illiquidity and complexity inherent in this asset class. Transaction volume has decreased, and private equity funds have struggled to attract new capital funding over the past two years.4
But the survivors have continued to build their customer base and grow revenues. The technology sector has been buoyed by strong fundamentals, and deal activity in tech started to uptick in 2024 and is expected to continue to increase in 2025-2026.5 The private equity healthcare sector has lagged over the past several years due to regulatory complexity and policy uncertainty but is also gathering steam.6
At Evercore Wealth Management, we are focused on manager selection in this asset class and advising clients on their optimal allocations. For those investors that have a long-term investment horizon and a risk tolerance for illiquidity, allocating to private equity can add diversification and potential for outsized growth. Private equity and other illiquid investments generally represent between 5% to 20% of individual portfolios, depending on investor qualification, investment horizon and goals.
Stephanie Hackett is a Partner and Portfolio Manager at Evercore Wealth Management. She can be contacted at [email protected].
Manager selection
Choosing the right managers is key to success in private equity, as we expect our private equity investments to earn a premium that will compensate for illiquidity.
Private equity remains an inefficient asset class, meaning that information access and manager skill can be significant drivers of return. It is critical to identify managers able to buy well, build well and sell well:
Buy well: Private equity funds have historically bought companies at valuation multiples that average 2.5 times lower than public market multiples.7
Build well: Private equity funds have been able to build companies with higher and more resilient growth through economic cycles, despite higher leverage.8
Sell well: Private equity funds add value during their ownership, selling better businesses than they bought. The average valuation multiple for private equity-backed companies is 1.2 times higher at exit versus what the managers paid at entry.9
Over the past 10 years, the dispersion in performance between the top quartile and bottom quartile for public equity portfolio managers has been between 2% to 3%. In private equity, this performance differential is 20%-plus.10 And there is greater evidence of performance persistence in private equity. About 70% of private equity funds that performed in the top quartile of their vintage year have a successor fund that also generated above median returns.11 Top-performing private equity funds can attract and retain talent, as well as access unique and proprietary deal flow. They are also able to raise larger successor funds that are often oversubscribed, so the teams spend less time fundraising and more time focusing on their portfolio companies.
— SH
1 Source: PitchBook/LCD, World Federation of Exchanges database, iCapital Investment Strategy, with data based on availability as of Jan. 31, 2025.
2 Source: MSCI Private Capital Solutions, Bloomberg, with data as of Sept. 30, 2024.
3 Source: S&P Capital IQ, iCapital Investment Strategy, with data based on availability as of February 2023.
4 Source: PitchBook, with data based on availability as of Jan. 31, 2025.
5 Source: PitchBook, with data based on availability as of Dec. 31, 2024.
6 Source: PitchBook, with data based on availability as of Dec. 31, 2024.
7 Source: PitchBook Data, Inc./Bloomberg, with data as of Dec. 31, 2024.
8 Source: Dawson Partners and MSCI Private Capital Solutions/Bloomberg/PitchBook Data Inc based on the Russell 3000 index.
9 Source: Dawson Partners.
10 Source: Burgis, PivotalPath, Morningstar, Refinitiv, J.P. Morgan Asset Management.
11 Source: Preqin, includes all Preqin Private Equity Buyout funds from 1977 to 2013.