There's a surprising disconnect between the perceived brilliance of individual investors at large, well-known private equity firms and their actual net-to-LP returns, which are often no better than the market median. This violates the assumption that top talent automatically generates outlier results.

Historically, private equity was pursued for its potential outperformance (alpha). Today, with shrinking public markets, its main value is providing diversification and access to a growing universe of private companies that are no longer available on public exchanges. This makes it a core portfolio completion tool.

Contrary to popular belief, the market may be getting less efficient. The dominance of indexing, quant funds, and multi-manager pods—all with short time horizons—creates dislocations. This leaves opportunities for long-term investors to buy valuable assets that are neglected because their path to value creation is uncertain.

The private equity market is following the hedge fund industry's maturation curve. Just as hedge funds saw a consolidation around large platforms and niche specialists, a "shakeout" is coming for undifferentiated, mid-market private equity firms that lack a unique edge or sufficient scale.

New private equity managers often define their strategy too broadly. The winning approach is to first dominate a narrow swim lane, like 'buy-and-builds of blue collar services,' to build credibility. They can then earn the right to expand into adjacent markets in later funds.

With fundraising rounds closing in weeks instead of months, investors can no longer conduct exhaustive diligence on every detail. The process has become more efficient by treating the current business model as table stakes and focusing limited time on underwriting the core thesis for future, non-obvious growth.

The era of generating returns through leverage and multiple expansion is over. Future success in PE will come from driving revenue growth, entering at lower multiples, and adding operational expertise, particularly in the fragmented middle market where these opportunities are more prevalent.

The venture capital paradigm has inverted. Historically, private companies traded at an "illiquidity discount" to their public counterparts. Now, for elite companies, there is an "access premium" where investors pay more for private shares due to scarcity and hype. This makes staying private longer more attractive.

Proven operating models like the Danaher Business System aren't widely adopted for three reasons: they require immense discipline, their benefits take years to materialize (conflicting with short-term PE fund timelines), and most investors lack the hands-on operating experience to implement them credibly.