‘Private equity’ cries out for a rebranding

Blue Owl Capital

15/05/2026 15:04

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jeffrey Goldfarb

NEW YORK, May 18 (Reuters Breakingviews) - An industry focused on financial makeovers is long overdue a cosmetic one. The decades-old business of amassing money to back unlisted assets operates broadly under the banners of private equity and alternative investments. Neither really fits the bill anymore, especially as thousands of such funds increasingly chase mom-and-pop retirement savings. A new moniker ideally would emphasize the main feature, which is magnified right now: difficulty extracting cash quickly.

When banking and industrial tycoon J. Pierpont Morgan borrowed some of the $480 million he paid to acquire Carnegie Steel in 1901, it was the “first real leveraged buyout in the United States,” according to Carlyle co-founder and history buff David Rubenstein. Decades passed, however, before the investment approach took fuller shape. It borrowed from “adventure capital,” formed after World War Two to support early technology ventures, and the hedge fund model pioneered by Alfred Winslow Jones, who introduced the idea of charging clients a 2% annual management fee on assets while also taking a 20% cut of any upside.

After men like Lionel Pincus, Henry Kravis and Martin Dubilier opened the respective shops that bear their names in the 1960s and 1970s, and the U.S. Labor Department cleared the way for pension funds to invest in them, it didn’t take long for a backlash against leveraged buyouts, or LBOs, to escalate. The firms were called “corporate raiders,” “asset strippers” and “locusts” for lining their pockets with cost savings generated by slashing workforces at the companies they bought, carving them up or larding their balance sheets with crushing loads of pricey debt. A series of high-profile bankruptcies and the 1989 junk-bond market implosion forced buyout barons to regroup.

The etymological taint of “leverage” was whitewashed by flipping the emphasis onto the sturdier part of the capital structure: “private equity” became the new norm. As funds diversified into infrastructure, real estate, credit and other sorts of investments, the “alternative assets” catch-all descriptor spread, too, differentiating such strategies from more traditional stocks, bonds and cash. The term also sows confusion because it often extends to independent hedge funds and venture capital firms, as well.

Even today, Blackstone BX.N, which is entrusted with $1.3 trillion, describes itself as “the world’s largest alternative asset manager.” Warburg Pincus, which is more narrowly focused and just celebrated its 60th anniversary with a gala New York event, self-identifies as “a leading global private equity firm.” The industry’s lobbying and trade group, started in 2007 as the Private Equity Growth Capital Council, later emblazoned its letterhead with the obfuscatory American Investment Council name instead, blending in with the crowd. The similar-sounding Investment Company Institute, for example, is a coalition of mutual and exchange-traded funds. The industry's next phase calls for a better brand. Three big developments, recently pinned to the mood board, help with the exercise.

Most impactful will be the newest sources of money. Until recently, accessing private equity required the same sort of privilege and financial sophistication typically reserved for getting into Montana’s exclusive Yellowstone Club or 5 Hertford Street in London. In 2020, however, the Securities and Exchange Commission expanded the definition of who qualifies as an “accredited investor” eligible to invest in private markets. The Trump administration last year opened the doors even wider, including for popular 401(k) funds holding more than $10 trillion that millions of Americans have socked away for retirement. Blackstone, KKR KKR.N, Apollo Global Management APO.N and others have designed new vehicles to entice the workaday wealthy.

Adding another wrinkle is the accelerated expansion in business lending, widely known as “private credit” to differentiate it from the closely regulated variety supplied by banks. From 2018 to 2024, annualized growth in private credit, at almost 16%, lagged only that of funds targeting secondhand buyouts, according to Preqin. The data cruncher also projects that private credit assets, which already have overtaken the separate pools of capital earmarked for infrastructure, real estate and startups, will swell to $4.5 trillion by 2030, from $1 trillion in 2019.

These two coinciding trends, along with a third, have helped to spotlight the entire buyout industry’s defining attribute. Spooked by headline-grabbing wipeouts, like software developer Medallia’s, and rising default rates, investors sought to pull some $20 billion from funds run by Blue Owl Capital OWL.N and others in the first quarter. Redemption requests, including from retail-focused lending ventures known as business development companies, were in most cases either capped by contract or outright gated, preventing a mass exodus.

At the same time, private equity has been having a hard time crystallizing value. Their funds are sitting on roughly 32,000 portfolio companies worth more than $4 trillion, with the average holding period now at a moth-eaten seven years, according to consultancy Bain. They typically prefer to exit in less than five.

This illiquidity, and the opacity it confers, is a feature not a bug. The idea is to invest for the long term without having to worry about withdrawals the way publicly traded companies, ETFs and other more easily tradeable securities do. It’s an attribute, however, either misunderstood or not fully grasped by many individual investors being wooed into the inner sanctum.

Private equity firms didn’t help the cause by pitching their credit wares as “semi-liquid.” Carlyle CG.O boss Harvey Schwartz said the industry could have been clearer: “We just should have called them ‘sometimes not liquid at all.’”

In fact, it’s worth putting that idea right on the label. Instead of leveraged buyout, private equity or alternative assets, this entire $14 trillion investment complex would be better off branded as something like “captive capital.” A little truth in advertising goes a long way.

Follow Jeffrey Goldfarb on X and LinkedIn.

Variety shops: aggregate capital raised by fund type https://www.reuters.com/graphics/BRV-BRV/xmvjywazypr/chart.png

Special 401(k): More retirement money for private equity to chase https://www.reuters.com/graphics/BRV-BRV/znpnmgwywvl/chart.png

Aging out: Buyout shops are holding companies for longer https://www.reuters.com/graphics/BRV-BRV/mopaozoejpa/chart.png

(Editing by Liam Proud; Production by Maya Nandhini)

((For previous columns by the author, Reuters customers can click on GOLDFARB/jeffrey.goldfarb@thomsonreuters.com))