“Private Equity (PE) owned companies accounted for 11% of all bankruptcies in 2024 with clear overrepresentation among large bankruptcies,” according to the Private Equity Stakeholder Project. Furthermore, PE owned companies accounted for 70% of large bankruptcies in the 1st quarter of 2025 – companies with liabilities of over $1 billion according to the same source. How then can purported PE returns be as good as presented?
The Trump Administration is considering opening up 401k plans to Private Equity investments which are now limited to well-to-do investors given their high-risk profile. Cambridge Associates collects PE performance data from many firms among others doing the same thing. Most investment returns are manager-fed and lack SEC oversight imposed on mutual and exchange-traded funds.
Unlike the mutuals and ETFs, PE firms charge hefty management and incentive fees, often as high as 2% and 20% respectively. By comparison, the average fee levied on equity mutual funds centers around 40 basis points. PE funds almost always have lock up periods which can range between 8 and 12 years. Thus, PE investments would not be available for emergency withdrawals in 401k plans unlike publicly traded stocks.
Private Equity firms typically buy publicly traded companies and take them private. In doing so, they typically leverage the balance sheet with additional debt making them unstable and risky. PE owned companies accounted for 56% of bankruptcies for companies with over $500 million in liabilities in 2024. Moreover, these bankruptcies led to more than 65,000 job losses.
Factors resulting in bankruptcies include high debt levels, aggressive management strategies, and reverse real estate transactions. The use of leveraged buyouts by PE firms exposes their companies to potential problems caused by economic downturns and higher interest rates.
Aggressive management practices focused on cutting payrolls can weaken companies and lead to failures. Reverse real estate transactions involve selling real estate assets and then entering into leasing agreements which translate into higher debt loads.
The Private Equity Industry came to prominence in the 1980s when Kohlberg, Kravis and Roberts & Co acquired RJR Nabisco in a highly publicized buyout. PE Industry assets at this time were around $20 billion. From this point forward, PE asset growth has been meteoric according to S&P Global. Such assets have rocketed over the past 5 years from $301 billion to $3.1 trillion by the end of 2024 or by 10 times.
By comparison, the total value for the US stock market rose from $38 trillion to about
$60 trillion over the same period according to Siblis Research. This swelling of PE assets means that PE firms are chasing fewer opportunities and that publicly traded stocks look like a better bet to investors than the private markets. The Texas Retirement System has apparently come to the same conclusion because it recently announced a
$10 billion reduction in its PE allocation.
In summary, investors would be better off by sticking to the public markets in their 401ks. The public market has provided a fully transparent annualized return of 12% since 1982 based on the S&P 500 with immediate liquidity for emergency withdrawals.
Robert Zuccaro, CFA is the Founder & CIO of Golden Eagle Strategies. Over the course of his 40 year investment management career, Robert has managed market leading institutional portfolios and four mutual funds. He is one of the most successful investment managers having been named a top 10 manager in numerous years by the Wall Street Journal and Lipper Fund Survey. He’s also been cited for outstanding performance by Financial World, Investor’s Business Daily, and Business Week.
Email:info@goldeneaglestrategies.com/ phone: (561) 510-6606
