Private Equity for All: The Paradoxical Push to Democratize Private Markets

Efforts to open private equity and other private assets to retail investors—including now through 401(k) plans—are often framed as a long-overdue democratization of superior investment opportunities. Indeed, private equity has always been viewed as special, both for its market-beating returns and its success in making companies more profitable, yet it has historically been off-limits to retail investors.

In Private Equity for All: The Paradoxical Push to Democratize Private Markets, we argue that the push to democratize private equity is subject to a glaring paradox. Far from sharing the spoils of private equity with the public, opening private markets to retail investors at scale is likely to erode or eliminate each and every one of the supposed advantages of private equity over public markets—not just for retail investors but across the market. Consequently, whether private equity’s appeal lies in superior investor returns or superior corporate governance, broad retail access is likely to ensure that neither one is achieved.

The debate has become urgent. New products targeting retail investors are continually being launched by private-asset managers and blessed by regulators. And in the summer of 2025, an executive order directed the U.S. Securities and Exchange Commission and U.S. Department of Labor to pave the way for private equity to access a particularly massive pool of retail capital: the $10 trillion 401(k) market.

The current push to democratize private equity and other private assets rests on a powerful narrative: that retail investors have been unfairly excluded from superior investment opportunities, and that expanding access—including through 401(k) plans—will correct an inequality while improving retirement outcomes.

That narrative does not hold up, however, when confronted with the basic economics and institutional design of private equity. The public markets offer retail investors the benefits of market efficiency, liquidity, and the ability to index at negligible cost. Private equity, by contrast, has always depended on illiquidity, bespoke contracting, limited transparency and regulation, and a governance and reputation ecosystem built around sophisticated repeat players—none of which translates to a mass retail market.

The effort to expand retail access therefore suffers from a fundamental paradox. The more private equity becomes broadly accessible, the more it is pushed toward the public-market model that it has long claimed to outperform, and the less plausible it becomes that either retail investors or private equity itself will retain the benefits that democratization promises.

From the standpoint of retail investors, the claim that allocating to private equity will improve their risk-adjusted returns and allow them to better compete with institutional investors is weak. The private markets already appear to be losing their famed outperformance relative to the public markets, even for institutional investors, and any remaining excess returns should be competed away as new capital floods in. Meanwhile, retail investors would face numerous disadvantages relative to institutional investors in the private markets.

From the standpoint of private equity, retailization threatens to undermine the industry’s foundational advantages. As we show in the paper, private equity has repeatedly (and as recently as the past two years) defended its light regulatory treatment on the grounds that its investors are sophisticated and capable of protecting themselves through contract and monitoring. Yet retail money would invite litigation, regulation, and public scrutiny, all of which would constrain the traditional private equity model, causing it to more closely resemble the public markets while still carrying higher fees. Retailization therefore undermines the traditional approach to private equity that has brought it success for decades.

These conclusions do not suggest that private equity is socially harmful or that it should be suppressed. To the contrary, the traditional private equity model can, in some settings, improve governance and operational performance in companies worldwide. The question is not whether private equity creates value, but whether mass retail participation is a sound way to allocate household savings and whether private equity can continue to create value once it has abandoned the very features that made it special.

Why, then, is private equity now seeking retail money, effectively eating its own tail?  This dramatic about-face from the private equity industry stems from its current economic headwinds.  Higher interest rates and a growing backlog of unsold portfolio companies have strained the private equity business model. At the same time, institutional investors have largely reached their allocation limits to private equity, slowing down the flow of new capital that drives private equity firms’ compensation.  Retail capital offers a solution: private equity funds can offload their investments on the newcomers and restart the compensation engine. For the same reasons, however, this would be a particularly inauspicious time to release retail investors into the private markets.

Concerns over the false promises of retailization are especially acute when it comes to Americans’ retirement savings. Private asset managers are poised to seek the inclusion of private assets in the target-date funds that have become the default options in 401(k) plans. This risks shifting millions of households into higher-fee products without the promise of higher returns—and without their noticing.

Retailization is not a free lunch. Opening private equity to retail investors at scale is likely to drive down returns, increase the fragility of the financial markets through liquidity mismatches, and import the regulatory and litigation pressures that private equity has long sought to avoid. If private equity’s promise is that it is different from public markets, then making it a retail market erodes that difference. And if private equity is no longer special, the case for routing ordinary households’ savings into high-fee, illiquid products becomes correspondingly harder to defend.

Retail investment in private equity seems all but inevitable at this stage. Investors and policymakers should be clear-eyed, however, that the primary beneficiaries are likely to be private asset managers, while the costs are borne by retail savers, institutional investors, and the U.S. economy more broadly. For retail investors, private equity is not a golden ticket, but a Trojan horse.

The full paper, which is forthcoming in the Duke Law Journal, is available for download here.