Private equity funds are losing to the S&P 500 of late—why investments for the wealthy aren't necessarily better

Private equity funds, traditionally reserved for accredited and wealthy investors, have notably underperformed public benchmark indices such as the S&P 500 in recent years. According to Cambridge Associates, its Private Equity Index delivered an annualized return of 7.4% over the three years ending March, compared to an 18.3% annualized return for the S&P 500. Over a five-year horizon, private equity returned 9.3% annualized versus 12% for the public benchmark. While private markets outpaced public equities over a longer 25-year span (12.8% versus 10%), the recent shift in macroeconomic conditions has eroded private equity's edge. Higher borrowing costs since late 2022 have weighed heavily on leveraged buyout models, causing Bloomberg's private equity index to lag the S&P 500 by 18 percentage points between October 2022 and March 2026. As regulatory bodies consider easing access to alternative assets in workplace 401(k) plans, financial experts advise retail investors to weigh illiquidity risks and higher management fees against the historical diversification and long-term return potential of private market strategies.