Private equity has played a diversifying role in the portfolios of institutional investors but the asset class could be showing signs of concern.
Most outlooks show a landscape of companies slowing down their initial public offerings and mergers and acquisitions in favour of staying private for longer.
A report from BlackRock Inc. indicated investors are increasingly seeking a whole-portfolio approach incorporating private markets along established assets like active equities, fixed income, cash, multi-assets and index funds.
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Due to demand for private assets, there are now trillions of dollars tied in private markets at a time when there are increasing concerns for sluggish deal activity and market saturation concern, according to a September 2025 report from CFA Institute. It argues investors and economies are at risk of being exposed to “PE’s worst management practices,” due to an overreliance on high leverage and short-term cash extraction.
The vagueness of how private equity extracts value was made explicit in Megan Greenwell’s 2025 book ‘Bad Company: Private Equity and the Death of the American Dream,’ where individuals tell tales of the direct impact private equity investors had on their day-to-day lives.
“The industry manages highways, municipal water systems, fire departments and emergency medical services in towns across the [U.S.], and owns a growing swath of commercial and residential real estate,” Greenwell’s writes.
CFA Institute’s report noted private equity’s promise of modernized impact and greater efficiency is mixed. “Since no sector is deemed out of reach, it is fair to ask what could be the long-term impact of the widespread use of PE practices on key industries or even the broader economy.”
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Institutional investors are well equipped to handle private markets, thanks to staff investigating questions in deals, assessing leverage structures and modelling exit risks, said an August 2025 report from the Stanford Graduate School of Business.
Private equity is attractive to investors because assets are nimble under an independent environment without adhering to the “quarterly earnings grind.” However, that benefit is a sticking point against private equity, especially compared to public assets, said Yuanshun Li, associate professor and interim chair of finance at Toronto Metropolitan University, in a previous interview with Benefits Canada.
Li argues public assets are a safer space for investors to explore because of the non-negotiable liquidity and transparent price discovery. He added the type of institutional investor and its particular investment objective plays a role in its approach to private equities.
“There are institutional investors mainly focused on the equity growth [and others] mainly focused on getting involved in the early stage of certain projects and then exit later.”
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