Private equity may be our No. 1 economic boogeyman. It is blamed for rising real estate prices, poor medical care, and ruining many of the businesses we used to love. And yet it is also being mainstreamed as an asset class, with most everyone seemingly wanting a piece of the $7 trillion or so market that touches many of the goods and services we consume. The lure only grew stronger during the initial public offering of SpaceX, which valued the company at $1.8 trillion and handed unimaginable wealth to private equity investors.
Although it’s been said before, it’s worth repeating: None of that means private equity should touch our portfolios despite the government’s increasing efforts to add so-called alternative investments to the retirement accounts of Americans.
Private equity, which pools capital from institutions and wealthy individuals and deploys the money in non-public companies, plays an important role in the economy. It can be an invaluable source of financing for smaller firms looking to grow and bring better management practices to those that are troubled. It can even help make housing more affordable.
Major asset managers consider private equity a normal part of a diversified portfolio, perhaps too normal. Hedge fund Verdad Advisors points out that it accounted for 41% of Harvard University’s investment portfolio in 2025 while public stocks made up just 14%. BNY Wealth says it is common for large family fortunes to have more money invested in private than public markets. In 2024, about 14% of state and municipal pension portfolios were in private assets.
To Verdad founder Dan Rasmussen, this shows that private equity has become as mainstream as stock of blue chip International Businesses Machines Inc. Rasmussen, though, is no cheerleader. He believes private equity is “not appropriately sized” within portfolios. It’s too risky for major institutions like Harvard or pension funds that serve retirees to have such large allocations to private equity when it’s less than 5% of the size of the global public equity market:
If your wealth manager put 40% of your portfolio into India because he told you Indian equities (which have roughly the same market capitalization as private equity and better liquidity) would reliably outperform other equity markets, you’d probably ask some follow-up questions. India may or may not be a good investment, and you might or might not want to be overweight it, but even if you love India, putting 40% into that one trade would force you to forgo the benefits of diversification into other markets and crowd out a variety of other opportunities.
The case for private equity for all is that it offers access to the most exciting and fastest growing companies, like SpaceX or OpenAI. As these examples show, access to private equity has allowed companies to delay selling shares to the public, who are shut out from participating in what are often a firm’s biggest period of growth. If more of the best of corporate America remains private, the argument goes, then regulations that keep retail investors out of private assets seem a bit antiquated.
