Baillie Gifford's Brian Kelly explains why private growth equity is having its time in the spotlight as 'one of the most attractive asset classes'
Before the Great Financial Crisis (GFC), some of the most iconic companies that we consider growth companies today, like Amazon, Google, Microsoft, Salesforce and even PayPal, raised minimal private capital before going public. But as Brian Kelly explains, that is no longer the case as more companies are staying private for longer.
Kelly believes private growth equity is having its time in the spotlight, even if many institutional investors haven’t quite realized it yet.
He shares the belief that growth equity, both public and private, is a fundamentally misunderstood and underappreciated asset class. As a director and investment specialist at Baillie Gifford, he attests that it’s “one of the most attractive asset classes to invest in.”
According to Kelly, the post-financial crisis period was the turning point in the evolution of private growth equity. Before 2008, the path to scale for most companies happened in the public markets, often after raising only modest capital privately.
“All of a sudden after the financial crisis, that changed, and the growth was now occurring in private markets,” Kelly noted. The shift was dramatic, with Facebook becoming the emblem of this new era, raising $10 billion in private capital before going public. Kelly underscores this wasn’t just about company preference, but a structural shift driven in part by the rise of passive investing.
“As more and more of the market goes to passive index funds, there’s less money available for active strategies,” he explained, adding that decline in active participation eroded demand for smaller IPOs, forcing companies to stay private longer. “There was a drying up of capital for these small IPOs as fewer public investors participated in their growth.”
Kelly believes institutional allocators need to rethink how they approach private markets if they want to capture the full opportunity set of growth equity. Traditionally, allocators have structured their private portfolios around two dominant models: venture capital and buyouts.
“Private growth today is the home of market leading companies. Think of them like the private Magnificent 7, alongside some incredible founder-led compounders. But they don’t fit the playbook that venture and buyout owners are looking for,” Kelly said. “They should probably start to think about having a bucket for private growth and that bucket has different characteristics than they’re used to.”
Buyout investors typically focus on control, financial engineering, and heavy operational influence, whereas venture capitalists are geared toward company formation and early-stage governance. As Kelly argues, neither model aligns with what’s happening in the private growth space.
“What’s missing is this world of minority-owned private growth companies,” Kelly said.
In Kelly’s view, this is a key characteristic of the private equity space as these companies are typically founder-led and intentionally avoid giving up control to outside investors. Unlike buyout firms that demand majority control and board seats, private growth investors often take minority positions, backing companies that want capital to scale but not interference.
He disagrees with the prevailing view among allocators that control is a necessary feature.
“We actually think non-control can be positive selection bias,” he said. “It's been our observation in talking with some allocators that they haven't really thought about this playbook yet, and they're thinking about it from the lens of venture and buyout but that misses the exceptional potential of these companies in this space.”
Another key distinction of growth equity is that it relies heavily on human judgment rather than quantitative metrics as algorithms can’t assess whether a management team can scale a company or whether a company culture is replicable across global operations.
That’s why he describes growth equity as the art of betting on the transformation of a beloved product into a thriving business.
“If you're taking a company that effectively has a really great product, something that customers love and want to pay for, but hasn't yet become a functional business… that’s what we ultimately want as growth investors,” he said. “We want that product to grow into a cash flowing, growing company at a valuation at the market will celebrate.”
Additionally, what makes private growth even more compelling, Kelly argues, is the significantly reduced downside compared to early-stage venture. He explained that by the time these companies enter the growth phase, they’ve typically solved for the key reasons startups fail like product-market fit, cash burn, and team dysfunction. In his view, staying private allows companies to prioritize long-term value creation, even if it means delaying short-term gains.
“If you are thinking about growing 10 or 100 times, profitability over the next four quarters has nothing to do with it,” he said.
He emphasized that the asset class is still in its early innings, and institutional investors will need to adapt going forward. As capital ultimately needs to grow, the question becomes not just what to own but who should own it.
“There’s a $5 trillion market cap in companies valued over a billion dollars in the private space. It’s almost the size of the global small-cap universe. There are exceptional companies here,” he said. “Many are profitable. Many are valued below market multiples. They’re market leaders. And they’re still private."
