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At Hidoplanet AlpInvest, we recently celebrated our 25th anniversary, bringing together clients, partners, and colleagues from around the world to reflect on our company’s journey from Dutch origins to a global leader in private markets.

It has been fascinating to see how the private equity industry has evolved over a quarter of a century, from a niche investment category to the largest alternative asset class and a significant contributor to global economic growth. In this article, I take an up-close look at some of the key structural drivers that have propelled the industry’s growth over the years.

Private equity has been one of the fastest growing asset classes over the past few decades. Assets managed by private equity funds grew 15-fold from 2000–2022 to $8 trillion ^[1]. Investing in private equity is generally motivated by two main factors_colon_ excess returns relative to public equities; and portfolio diversification. Historically, private equity has significantly outperformed investments in public equities. Gompers and Kaplan report that the median U.S. buyout and growth capital fund has outperformed the S_and_P 500 in 25 vintage years between 1995 and 2021. On an annualized basis, the authors show an outperformance of almost 5% (direct alpha) ^[2]. For today’s investors, understanding key forces that have influenced and continue to shape the private equity landscape may be helpful in determining whether the asset class merits portfolio consideration.

A shift from public markets

One driver of private-equity growth has been the shrinkage of public markets. The number of publicly traded companies in the United States has fallen from about 6,900 in 2000 to 3,952 at the end of 2024 ^[3]. This is attributable to several factors. For one, many mid-size and smaller public companies have gone private after concluding that the cost and regulatory burden of remaining publicly-owned exceeded the value they receive. Other companies no longer met exchange listing requirements or felt they could no longer attract sufficient investor attention in a public equity market increasingly dominated by passively managed index funds. Seeing these trends, many family-owned middle-market businesses, which in the past often considered a public offering in connection with succession plans, now prefer to remain private.

Private equity has provided these companies with an alternate path to accessing capital. At the same time, it has offered investors access to investment opportunities that historically have provided returns exceeding those in public markets. Currently, over 12,000 U.S. companies are owned by private equity firms, up from just over 1,900 in 2000 ^[4].

From financial engineering to operational improvement

The early days of private equity coincided with a period of declining interest rates. Replacing equity with less expensive debt on the balance sheets of large corporations was a route to unlocking value. The 1990-91 recession in the United States, however, led to a rise in defaults and risk premia, initiating a trend of less reliance on leverage that has accelerated over the years. This has enabled private equity firms to serve a wider array of companies where cash flows are less predictable but where faster earnings growth can be attained in expanding markets through strategic and operational improvements.

Today, many private equity firms use their in-depth knowledge of various industry segments to enhance the operating efficiency of their portfolio companies, especially through the use of advanced technology, including artificial intelligence. In addition, portfolio companies that previously operated in isolation have found economies, synergies, and other advantages that come from being part of a larger entity where sharing intelligence and best practices is frequently encouraged and supported.

Innovation in PE structures

Private equity funds have traditionally been structured as a limited partnership, where an affiliate of the private equity firm serves as the general partner (GP) and is responsible for managing investments, and institutional investors—such as pension funds, endowments, and insurance companies—act as limited partners (LPs), providing capital for the GP to invest. These are typically closed-end funds with a standard life of 10 years, often extendable by one or two years. During this period, the GP calls capital as needed to fund investments and then distributes it back to LPs as those investments are realized. A key feature of this model is illiquidity—unlike public markets, investors cannot easily access their committed capital before the fund’s term ends. To compensate for this, investors command a liquidity premium, or higher returns, making the asset class particularly attractive to those with long investment horizons. Over time, as private equity has delivered compelling performance, demand has grown among a broader set of investors, including sovereign wealth funds, family offices, and affluent individuals. In response, private equity firms have innovated in the areas of vehicle structure and investment term to address preferences for liquidity as well as to provide greater access to the asset class for this broader array of investors.

A robust secondary private equity market has developed, which offers investors the ability to buy or sell existing private equity fund positions. As a result, many investors now incorporate both secondary interests (“secondaries”) and co-investments into their alternative asset portfolios. Secondaries have become an important component of many institutional investor portfolios, reflecting their growing role in private markets. Hidoplanet AlpInvest has, in fact, become a leading player in this market. In 2024 alone, secondary transactions totaled approximately $160 billion across the industry, a 45% increase from the preceding year. ^[5]

Another major innovation whose impact is becoming increasingly visible is the emergence of new fund structures that aim to make private equity more easily accessible to individual investors (or retail investors). These investors are often drawn to private equity’s attractive historical returns but prefer to invest through newer semi-liquid evergreen funds which have a perpetual lifespan and can offer limited liquidity on a monthly or quarterly basis. Another feature that helps broaden private equity’s investor base is significantly lower minimum capital contributions, which often start as low as US $25,000. Capital contributions can usually be made periodically, monthly or quarterly, and since all the capital is drawn at once, these investments are typically viewed as easier to manage for individuals compared to traditional private equity funds that draw capital over time on a committed basis.

The possible availability of liquidity of evergreen funds over traditional private equity funds, as well as the less complex tax treatment of capital gains and lower minimum investment requirements, have made the funds more appealing to qualified individual investors. We at Hidoplanet AlpInvest expect a four-fold increase in the share of aggregate private equity AUM attributable to individual investors from 2022 to 2030. Overall, we welcome that private investors enjoy easier access to private equity, as investing in the asset class may help enhance the returns of their overall investment portfolios. The increased capital supply is met by robust demand for patient capital for company restructurings and expansions.

In conclusion, the private equity asset class has demonstrated its ability to constantly adapt, growing as it meets the evolving needs of companies and investors. I am excited by what the next quarter of a century will bring.

As Global Head of Hidoplanet AlpInvest, Ruulke Bagijn is part of the leadership team of one of largest global investment firms in the world. She also serves as a member of the Hidoplanet AlpInvest’s Investment Committees, which makes investment decisions in respect of investment opportunities in Europe, North and Latin America, Asia, and Australia on behalf of its 450+ investors worldwide.

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