As with any investment, your capital is at risk
A private equity outlook should focus on expected returns, distributions, continuation funds, private credit, and, very recently, the Saaspocalypse. These topics, however, are too nearsighted to help inform decisions for the next decade, and expert forecasts are either too inaccurate or conflicted to matter. So, instead, we will highlight how forces that generated returns in each asset class have changed over 20 years, and what that means looking forward.
Buyout is the largest private asset class. It earned the spot after more than four decades of unassailable returns. Leverage allowed sponsors to risk only a small portion of equity in acquisitions. And a sponsor’s playbook could produce immediate gains by reducing headcount, cutting capex, and raising prices. Just a few points of margin expansion could increase the investment return by 2–3 times after all the leverage.
The next 20 years will look nothing like the past 20 for three reasons. First – the macro. Buyout had three tailwinds over the last 20 years: a boom in GDP, rising deal values as a multiple on EBITDA, and rapidly declining cost of financing. All three of these are at risk of slowing or going backwards. Second – competition. As buyout became more competitive, sponsors stretched on price, reducing IRRs. The winning investor today accepts the lowest return. Third – return math. Cutting costs and raising price alone no longer generates required returns. Studies now suggest buyout needs a 12 percent EBITDA growth to meet return targets versus 5 percent required a decade ago.
For several decades, venture has been the engine of outperformance. From my own family office days, we saw small VC fund investments increase family wealth by 10 percent. Historically, venture was a cottage industry. In aggregate it raised $3–5 billion per year in the 1980s and 90s, and $10–20 billion per year in the early 2000s. That is nearly unrecognizable today, as single-seed rounds are at nearly the same scale. And it was far from competitive.
The outlook today is cloudier. Incredible opportunities remain, as just a few AI companies have generated over $1 trillion of wealth for their venture backers. But competition has increased by orders of magnitude. VC funds no longer have a monopoly on financing startups. Now they compete with accelerator funds like Y-Combinator, SOSV, or Neo. Companies are staying private for longer than their fund’s 10-year terms, with an average age at IPO of 12–14 years. And VC is getting diluted by large, successive growth-stage rounds. The best venture firms today look more like asset managers, raising multi-billion-dollar funds, deploying ever-larger checks. VC platforms will continue to offer tremendous value to companies and investors, but it will be increasingly difficult for return math to pencil out.
Growth equity, referenced as minority private investments with fast revenue growth, is a relatively new asset class. Historically, companies went public at this stage. But after the GFC, companies went from raising $10–30 million pre-IPO (Amazon and Google) to raising billions of dollars privately (Facebook) and accruing trillions of dollars of value to private growth shareholders.
Over the last seven years, growth has given investors reason to be cautious. It had a frothy bubble peak during COVID, followed by a prolific drawdown when interest rates rose in 2022. It is in the headlines daily next to $500 billion AI companies and trillion-dollar space IPOs. And valuations look elevated versus buyout and less asymmetric than venture.
Yet the outlook for growth is promising. The upper limit of company size is increasing, from $300 billion 20 years ago to $5 trillion+ today. The benefits of staying private are only getting stronger – more access to capital, more shareholder alignment to pursue bold long-term capex, and less pressure to meet short-sighted cash-flow targets. As investor participation grows, growth can continue taking share from IPOs, alleviating competition among GPs.
In summary, investors should consider how asset class evolution affects forward returns. Most PE outlooks will highlight past returns and current frustrations. But the next decade’s returns accrue to those who carefully underwrite inputs of forward returns and are comfortable with unknowable uncertainty. This is exciting work. This is investing.
For professional audiences only. This communication was produced and approved in April 2026 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking. The views expressed are not statements of fact and should not be considered as advice or a recommendation to buy, sell, or hold a particular investment.
Brian Kelly is an investment specialist and a member of the Private Companies Team. He joined Baillie Gifford in 2024. He graduated with a BSc in Mechanical Engineering from Brown University in 2008 and is a CFA charterholder.
