The Problem
Private equity outperforms. The data is not close.
A dollar invested in private equity in 2015 grew to $3.96 by 2024. The same dollar in the S&P 500 grew to $3.51. In the MSCI World, $2.61 (Hamilton Lane 2025 Market Overview).
Over a longer horizon the gap widens. Since 2000, private equity has returned 13% annualized versus 8% for public equities on the Russell 3000. Compounded over 24 years, that spread produces a 19.9x net return for PE versus 6.6x for public markets (Hamilton Lane 2025). Top two quartile PE funds have continued to deliver excess returns net of all fees, including carry (KKR).
The question is why.
The public penalty
Being a public company is expensive.
SOX compliance alone averages $2.3 million per year and 15,580 staff hours (KPMG 2025 SOX Survey). Over 50% of public companies report those costs increasing year over year (GAO). They buy no product improvement, no customer acquisition, no competitive advantage.
The number of U.S. public companies has dropped 50% since the 1990s (Columbia Business School). Median revenue at IPO is now $218 million. Over 1,200 unicorns are choosing to stay private (CNBC).
But the public penalty is not only compliance costs. It is quarterly earnings pressure from analysts who penalize long term investment. It is governance structures optimized for liability avoidance rather than value creation. It is boards that exist to prevent innovation rather than enable it. Companies that go public surrender operational freedom in exchange for access to capital markets and liquidity. The best companies have decided that trade is no longer worth making.
The most valuable companies stay private longer, which means more of the value creation happens before any public investor can participate.
The private penalty
Capital goes in. It does not come out.
Five year rolling DPI (distributions to paid in capital) (the cash LPs have actually gotten back), hit its lowest recorded level in 2025 (McKinsey Global Private Markets Report 2026). Distributions as a percentage of AUM fell to 6% in the first half of 2025, compared to the 2015 to 2019 average of 16% (McKinsey). Average buyout hold periods reached 6.6 years, the highest in two decades (McKinsey). The median fund launched in 2019 had DPI of just 22% at the five year mark.
These are not edge cases. GPs routinely keep capital locked for 12+ years. Some funds are over a decade in with DPI under 0.5x. LPs committed capital expecting 7 to 10 year fund lives and are now receiving distributions on a timeline that looks more like 12 to 15.
No liquidity means no ability to rebalance. No price discovery means no ability to value your portfolio accurately between quarterly marks. No portability means you cannot move your position when your thesis changes, your allocation targets shift, or your institution needs the capital for something else. You are locked in.
LPs are already telling you this is broken
The clearest signal that private market structure is failing its investors is the secondaries market. In 2025, secondaries volume hit $240 billion, up 48% year over year (McKinsey/Jefferies, CAIS).
They are selling positions at discounts to NAV, paying transaction costs, and accepting information asymmetry, all because the underlying fund structure offers no exit.
When investors spend $240 billion per year working around your product’s limitations, you do not have a liquidity problem. You have a structural problem.
Platforms exist that let you sell PE positions on secondary markets. But they inherit the same structural problems: one-off bilateral transactions, NAV discounts, information asymmetry, weeks to settle. They make it easier to exit. They do not make the position liquid. A liquid position has continuous price discovery, instant settlement, and no counterparty negotiation. A secondary sale is still just a negotiated exit with fewer phone calls.
The thesis
Private equity can outperform public equity because many of the best companies stay private. But accessing those returns means accepting the private penalty: illiquidity, opacity, lock up.
You can have the liquidity, price discovery, portability, and access of public markets without the regulatory overhead that drives companies private in the first place. The 3(c)(7) exemption from registration under the Investment Company Act of 1940 is the regulatory vehicle: a federal exemption that lets investment funds operate without the regulatory overhead of public funds, as long as every investor meets a wealth threshold. When every SPV follows the same structure, the same terms, and the same data model, positions become fungible. Fungibility enables a market. A market enables price discovery. Price discovery enables liquidity.