--- title: "Is Private Equity Just Beta With a Lockup?" description: "AQR's 2026 data shows private equity returning 4.2% versus 3.9% for public equities. The 30bp illiquidity premium barely justifies years of lockup." date: 2026-01-29 updated: 2026-02-23 author: "Philipp D. Dubach" categories: - "Quantitative Finance" keywords: - "illiquidity premium" - "private equity returns 2026" - "AQR capital market assumptions" - "PE vs public equity" - "venture capital dispersion" type: "Commentary" canonical_url: "https://philippdubach.com/posts/is-private-equity-just-beta-with-a-lockup/" source_url: "https://philippdubach.com/posts/is-private-equity-just-beta-with-a-lockup/index.md" content_signal: search=yes, ai-input=yes, ai-train=yes --- # Is Private Equity Just Beta With a Lockup? *Philipp D. Dubach · Published January 29, 2026 · Updated February 23, 2026* ## Key Takeaways - AQR's 2026 assumptions show U.S. buyouts returning 4.2% versus 3.9% for public equities, a 30bp premium that barely justifies years of lockup and manager selection risk - Venture capital dispersion is extreme: top decile managers earn 31.7% IRR while bottom decile return negative 7%, meaning average returns compress as capital floods in - 87% of U.S. companies with over $100M in revenue are now private, and 55% of median value for 2020-2023 IPOs was created before going public, up from 12% for 2014-2019 IPOs - Private credit expected returns dropped 0.5 percentage points year over year to 2.6%, offering less compensation than twelve months ago as spreads narrowed --- The pitch used to be simple: accept illiquidity, get rewarded. Lock up your capital for seven years, tolerate capital calls and J-curves, and in exchange you'd earn returns that public markets couldn't touch. It was the defining bargain of institutional investing for two decades. [AQR's latest capital market assumptions](https://www.aqr.com/Insights/Research/Alternative-Thinking/2026-Capital-Market-Assumptions-for-Major-Asset-Classes) make for uncomfortable reading if you're an allocator to private markets. Their expected real return for U.S. buyouts over the next 5-10 years is **4.2%**. For U.S. large cap public equities, it's **3.9%**. That's a 30 basis point premium for accepting years of lockup, unpredictable capital calls, limited transparency, and the very real risk of picking the wrong manager.![AQR Exhibit 6: Expected real returns for private assets showing U.S. Buyouts at 4.2%, U.S. Real Estate at 3.1%, and U.S. Private Credit at 2.6%](https://static.philippdubach.com/cdn-cgi/image/width=1600,quality=85,format=auto/aqr-expected-returns-private-assets.png) Private credit looks even worse. Expected returns dropped **0.5 percentage points** year over year as spreads narrowed and base rates came down. The asset class that was supposed to be the sensible alternative to stretched equity valuations now offers less compensation than it did twelve months ago. This isn't a temporary dislocation. It's the logical endpoint of too much capital chasing the same opportunities. When every pension fund, endowment, and sovereign wealth fund decides they need [20-30% allocation to alternatives](https://www.cbh.com/insights/reports/u.s.-alternative-investment-industry-report-2025), the returns that made alternatives attractive get arbitraged away. The money didn't find alpha. It became beta (with a lockup). I read more reports and the [a16z State of the Markets 2026](https://docs.google.com/presentation/d/e/2PACX-1vQXsMMv5ZCWm77za7oXJcz1X-Th5Mz15g5nYBxbUjnomStVcjn8lXPjE5LzAlvc_hg4yHKgwASWLo5a/pub?start=false&loop=false&delayms=3000&slide=id.g3b6e2578ab2_8_4858) isn't less interesting. The dispersion numbers tell an interesting story. In venture capital, top decile managers generate **31.7% IRR** while bottom decile managers return **negative 7%**. The spread between winners and losers is enormous. But that spread is precisely why average returns have compressed. Access to top-tier funds has always been limited, and everyone else is fighting over what's left.![Net IRR dispersion by strategy for 2002-2019 vintages showing venture capital with top decile at 31.7% and bottom decile at negative 7%](https://static.philippdubach.com/cdn-cgi/image/width=1600,quality=85,format=auto/a16z-irr-dispersion-by-strategy.png) AQR's framework suggests something that few allocators want to hear: the illiquidity premium might be negative for most investors. If you're not in the top quartile of manager selection, you're accepting lockup risk for returns you could approximate in public markets with better liquidity and lower fees. *Related: [How AI is Shaping My Investment Portfolio for 2026](https://philippdubach.com/posts/how-ai-is-shaping-my-investment-portfolio-for-2026/)* The counterargument, and it's a reasonable one, is that private markets offer exposure to companies you simply can't access in public markets anymore. This part is true. **[87% of U.S. companies with more than $100 million in revenue are now private](https://www.apolloacademy.com/many-more-private-firms-in-the-us/)**. The top 10 private companies represent 38% of total unicorn valuation, and that share has nearly doubled since 2020. SpaceX, OpenAI, Anthropic, Databricks, Stripe: these are category-defining businesses, and they're not on any exchange.![Share of U.S. companies with annual revenue greater than $100M showing private companies dominate](https://static.philippdubach.com/cdn-cgi/image/width=1600,quality=85,format=auto/a16z-companies-public-vs-private.png) ![Top 10 private companies represent 38% of total unicorn valuation in 2025, including SpaceX, OpenAI, Anthropic, Databricks, and Stripe](https://static.philippdubach.com/cdn-cgi/image/width=1600,quality=85,format=auto/a16z-top-10-private-companies.png) But access isn't the same as returns. You can have exposure to the most exciting companies in the world and still underperform a boring index fund if you pay too much or pick the wrong vintage. The S&P 500 minimum market cap eligibility has [tripled since 2019 to $22.7 billion](https://press.spglobal.com/2025-07-01-S-P-Dow-Jones-Indices-Announces-Update-to-S-P-Composite-1500-Market-Cap-Guidelines). Companies are staying private longer, which means more value creation happens before public investors get a chance. It also means private investors are paying up for that privilege. Value creation has moved earlier in the company lifecycle. For IPOs between 2014-2019, only **12% of median value** was created in private markets. For 2020-2023 IPOs, that number jumped to **55%**. If you want to capture returns from the next generation of important companies, you probably need private market exposure.![Return potential has shifted to private markets: median value created in private markets went from 12% for 2014-2019 IPOs to 55% for 2020-2023 IPOs](https://static.philippdubach.com/cdn-cgi/image/width=1600,quality=85,format=auto/a16z-value-creation-shift-private.png) The question really is what you're paying for it.At 4.2% expected returns versus 3.9% for public equities, you're paying in liquidity and flexibility for almost nothing in expected return. The premium that justified the allocation model has been competed away. If you're in the top 5% of venture funds earning 60%+ IRR, none of this applies. For everyone else, the world has moved on. > **Disclaimer.** All opinions expressed are my own. This is not investment, financial, tax, or legal advice. Past performance does not indicate future results. Do your own research and consult qualified professionals before making financial decisions. No liability accepted for any losses. --- ## Frequently Asked Questions ### Is the illiquidity premium in private equity still worth it? AQR's 2026 capital market assumptions show U.S. buyouts returning 4.2% versus 3.9% for public equities. That's a 30 basis point premium for accepting years of lockup, unpredictable capital calls, and manager selection risk. For most investors outside top-quartile funds, the premium that justified alternatives allocation has been competed away. ### What are expected private equity returns in 2026? According to AQR's 2026 capital market assumptions, expected real returns for U.S. buyouts are 4.2% over the next 5-10 years. Private credit is even lower at 2.6%, down 0.5 percentage points year-over-year as spreads narrowed. These returns barely exceed public market alternatives when adjusted for illiquidity and fees. ### How much does manager selection matter in private equity? Manager selection is critical. In venture capital, top decile managers generate 31.7% IRR while bottom decile managers return negative 7%. The spread between winners and losers is enormous. But this dispersion is precisely why average returns have compressed: access to top-tier funds is limited, and everyone else fights over what remains. ### Why has the private equity return premium compressed? Too much capital chased the same opportunities. When every pension fund, endowment, and sovereign wealth fund allocates 20-30% to alternatives, the returns that made them attractive get arbitraged away. The money didn't find alpha; it became beta with a lockup. ### Why do institutional investors still allocate to private equity? Access to companies you can't reach in public markets. 87% of U.S. companies with more than $100 million in revenue are now private. Value creation has shifted earlier: for 2020-2023 IPOs, 55% of median value was created in private markets versus just 12% for 2014-2019 IPOs. But access isn't the same as returns. --- Canonical: https://philippdubach.com/posts/is-private-equity-just-beta-with-a-lockup/ Content-Signal: search=yes, ai-input=yes, ai-train=yes This file is the canonical machine-readable variant of https://philippdubach.com/posts/is-private-equity-just-beta-with-a-lockup/. Author: Philipp D. Dubach (https://philippdubach.com/).