What Makes Private Equity So Sexy

Two years ago, I found myself in the private room of an upscale restaurant in Denver- one my husband and I never would have chosen for a date night. But on this evening, we were enjoying six exquisite courses on someone else’s dime (sort of). Around the table sat eight other people: two couples in their 60s, and four men in their late 50s, three of whom were in business together. I hadn’t known any of them before that night, and I never spoke to any of them again. The only reason we were all in the same room was because we were investors in at least one deal offered by the syndicating company picking up the tab.

The exclusivity of private equity isn't something the stock market can offer, and that's a big part of the pitch.

After decades of dutiful paycheck deferrals into our 401(k)s, many of us start to feel a little bored... or maybe a little cocky. No longer are we green investors; we’ve got our tax-advantaged accounts dialed in, the emergency fund funded, and our savings rate crossed the threshold of what we once thought impossible. We know the difference between a mutual fund and an ETF. We’ve opened a brokerage account. We’ve funded it. We’ve made trades. That all felt exhilarating in our 20s, confidence-building in our 30s, and now, perhaps in our 40s, a thought starts creeping in: There’s got to be something more. I should be taking this to the next level.

I think that mindset is a major reason so many investors get seduced by private equity.

Sometimes, private equity is as hot as it seems, and it can serve specific purposes in a portfolio. It may create tax opportunities through depreciation- for certain individuals who can benefit from passive losses. It may offer upside potential that doesn’t exist in public markets- for certain individuals who can tolerate extreme risk and survive a total loss. Another way private equity plays a crucial role in portfolios, and our world, is that private equity is currently, I believe, to be the most direct way to invest with our values. But that still comes at a cost, and with a lot of risk.

My own attraction to private equity came mostly from a sense of graduation. After years of actively investing in real estate through our rental business, I wanted exposure to passive deals at a larger scale. I thought I could get great returns, and I was ready to take on a new investing challenge. I figured I was hot enough 💅 to get into that private equity club.

I justified the risk, fees, and long timelines with the promise of higher upside, and the comfort of not getting calls about vacancies, tenant disputes, or roof repairs. It felt like a natural evolution for a real estate investor who had spent more than a decade building capital and net worth.

Just like in the air of an Emirates First Class lounge, the dinner in Denver was thick with pride and elitism. Everyone seemed pleased with their elevation from the herd. They were here, after all, in a private room. Their money wasn’t quietly compounding in the background of the stock market. It was known. They narrated their success to one another: vacation homes they loved, businesses they’d built or planned to sell, the lives they’d designed. This was an experience you simply couldn’t replicate through ordinary public market investing.

I played my part in this, too.

I had convinced my husband to attend mostly because I wanted the novelty of a fancy date night- something far beyond our usual style. But I’ll admit, I wasn’t exactly disappointed by the opportunity to pound my chest a little. I enjoyed talking shop with company executives and mostly male, retired investors who didn’t expect to see a middle-aged woman at the table.

I’d felt something similar years earlier, when I began courting syndicators and evaluating which ones might belong in my portfolio. I took pride in asking questions that stumped investor relations managers, or pointing out aspects of deal structures I didn’t like. I was doing my due diligence, but I was also feeding my ego in a way I never could by clicking “buy” inside my brokerage account. It made me feel special, exclusive.

And that exclusivity is a big part of the pitch.

Private equity investing is sold as something the wealthiest 1% do, and if you do it too, you can put yourself in the same room. That narrative helps justify the risk, fees, and complete illiquidity these deals demand. The problem is that private equity is an asset class that simply doesn’t make sense for most investors. And there’s a reason only the wealthiest 1% participate: there’s a very real chance of losing everything.

If your 401(k) has been compounding for decades, does that really mean you can afford a huge loss?

If the $500,000 you direct from your IRA into a carwash syndication disappears, do you still get to live the life you’re planning for your 60s?

Many of our clients have expressed interest in private equity. In some cases, it does make sense, and when it does, we carefully walk through deal analysis: vetting sponsors, fees, risks, timelines, and tax implications. More often, though, we compare a hypothetical private equity investment to a public market alternative.

Time and again, we see that ten years down the road, the public equity investment (stock market) is more likely to deliver a stronger outcome. And after those ten years, the investor would likely be in a far better position to invest privately anyway, thanks to her continued wealth accumulation, disciplined saving, and greater clarity around goals and milestones. Mostly, our hope is that she'd be making the choice based on a very calculated comparison, and not because "it's the next thing, and it feels right".

I’m grateful for the private equity experiences I’ve had. I’m also grateful to be an angel investor focused on funding women-led startups, which is a corner of private equity that feels far more fulfilling, and so far, more lucrative. Still, when I run the numbers, it’s clear my money would have performed significantly better had I leaned harder into the boring, public-market path five years ago. Even if recent market returns had been far more modest, the outcome would have favored my stock market investments.

Hindsight is 20/20... but I hope it can sharpen your foresight.

As private equity increasingly finds its way into retail portfolios, especially inside 401(k)s 😔, it’s worth remembering what’s hidden under that seductive hood: the fees, the illiquidity, and the risks that very few investors can truly stomach. That fancy dinner in Denver wasn’t really paid for by the company. It was paid for by fees that quietly eroded our returns. My husband and I would have been better off investing more in the stock market, and treating ourselves to a fancy dinner- with just the two of us.

The reality is: that meal cost far more than any six-course dinner ever should.