The case for private equity still stacks up, despite two bumper years for public markets

Note: This interview was taped on Wednesday 19 February 2025.

Private equity (PE) has typically been valued for its potential to deliver high returns and lower volatility compared to public markets. However, with rising interest rates, geopolitical tensions, and a slowdown in deal-making, not to mention soaring stock prices, questions have naturally arisen about whether the case for PE still stacks up.

According to Gabriel Ng of Neuberger Berman, the answer is a resounding "yes". While public markets have performed well recently, Ng highlights that this has been driven by a small number of stocks, making diversification through private equity all the more compelling.

"If we take a longer-term horizon and look at 5, 10, 15, or 20-year returns, the asset class has consistently outperformed public markets," said Ng. 

Despite the current market challenges, private equity remains a strong avenue for investors seeking premium returns and diversification in their portfolios.

One of the key trends Ng highlights is the growing flow of capital into private markets, with private equity-owned companies increasing in number while public companies continue to decline. Despite more competition for deals, he insists that his firm has become even more selective. 

"In a greater volatility market, in a market where there is geopolitical uncertainty and soft economic environments, our selectivity has gotten higher," said Ng. 

Rather than lowering standards to deploy capital, private equity investors are raising the bar, ensuring that investments meet strict operational and financial performance criteria.

Ng also identifies two major investment opportunities in the current landscape: co-investments and secondaries. Co-investments allow private equity firms to act as strategic partners, stepping in with capital to help general partners (GPs) grow their portfolio companies.

A particular focus has been on "midlife co-investments," where capital is used for strategic acquisitions or partial recaps to provide liquidity to existing investors. Meanwhile, secondaries, particularly GP-led continuation funds, have emerged as a way to extend ownership of high-performing assets while offering liquidity solutions to investors seeking exits.

To learn more about what's going on in the private equity space, and how the asset class is being made available for a wider array of investors, watch the video or read the transcript below. 

Edited Transcript

Chris Conway: Hello and welcome to Livewire Markets, my name is Chris Conway. Today I'm sitting down with Gabriel Ng from Neuberger Berman to talk about what's happening in the private equity markets. Gabriel, it's great to see you again. 

Gabriel Ng: Thanks for having me, Chris.

Chris Conway: The case for PE, Gabriel, has typically always been higher returns and less volatility. We've seen in the US, in the last couple of years, 20% plus returns on the S&P 500 with relatively low volatility as well. Whilst private equity has also been slowing due to rising rates, geopolitical uncertainty, and a decline in deal making. So does the case still stack up?

Gabriel Ng: Well, the short answer is yes, absolutely. I think there's no doubt that public markets have performed strongly in recent years, but if you really peel back the onion and dissect it, it's really driven by a small number of stocks. So, there is that concentration effect. Whereas for private equity, if we take a longer-term horizon, we look at 5, 10, 15, 20-year returns, the asset class has consistently outperformed public markets. So, I think for an investor that is looking for more diversification, and premium returns - of course it comes with additional risks, illiquidity, et cetera - but the private equity asset class, we strongly believe, still has a role to play in an investor's overall portfolio construction in addition to public markets.

Chris Conway: Gabriel, another thing that I've noticed is that more and more capital seems to be flowing towards private markets and private equity, so more capital competing for the same or less deals. Is that something that you've experienced? How you're navigating it, and do you have to now consider deals that perhaps you wouldn't have considered four or five years ago?

Gabriel Ng: The overarching comment is that the private markets continue to grow. There's a chart that we always look at: the number of public companies in the US vis-a-vis the private equity owned companies. Both graphs are moving in opposite directions. The number of public companies is coming down over the last 20 years and private equity owned companies are steadily ticking up, and, of course, private companies are also getting larger. So the opportunity set to put a larger equity cheque to work is certainly there. Are we looking at deals that we did not have to look at four to five years ago? I say ‘no’. The bar is even higher now. In a greater volatility market, in a market where there is geopolitical uncertainty and soft economic environments, our selectivity has gotten higher. The good news is, at least from our perspective at Neuberger Berman, is that the deal flow has kept up. It has got more robust as we continue to grow our GP networks and continue to be proactive providers of solutions to both our GP partners as well as the market opportunities that we see out there. I would say that we've certainly seen more robust deal flow and that helps the overall sourcing funnel and selectivity on our end.

Chris Conway: Gabriel, just to follow up there, if I may, you talked about there being a higher bar. How does that manifest?

Gabriel Ng: The bar has always been high, but in an environment where rates are higher for potentially longer, and there are multiple other factors to consider – tariffs, geopolitical tension - that stress testing on that base case becomes even more stringent. So laser focus on operating performance, we absolutely need to have conviction that there's ability to grow revenues and profits because the ability to depend on multiple expansion, on financial leverage, I think those factors have gone away. We've never really underwritten multiple expansion anyways. It's always seen multiples going in and exiting. But I think the other skill-based factors, like the ability for the sponsors and our GP partners to grow revenues and profits, become even more important in today's environment.

Chris Conway: Gabriel, where are you finding the most compelling opportunities at the moment, and has it changed since we spoke six months ago?

Gabriel Ng: Taking a step back, I think in an environment where liquidity is constrained, providers of patient capital like ourselves, we are well positioned to uncover some of these interesting investment opportunities. There's many, but if I were to distil it down to the things that have been busy for the last few years, I think number one, co-investments; the ability to be a core underwriting partner, to be a partner of scale and sophistication to our GP partners has been much appreciated as a form of value add, and that has given us the ability to step up and partner for our GPs on these transactions.

Midlife co-investments, a term that we've coined internally, is essentially us investing into a portfolio company that a GP has owned for a number of years, and our capital is utilised to provide a solution. It could be a partial recap to allow the GP to send some distributions back to LP.

It could also be used for very strategic transformative M&A to realise the synergies from a combination of two different companies and ultimately position the asset better for a sale down the road. So that's on the co-investment side.

On the secondaries front, GP led continuation funds have been a big theme. We see more and more of that happening. It has really evolved, this whole asset class, and today it really revolves around the top performing assets within the GPs fund. So we are once again, a provider of liquidity solutions to the older LPs of the selling fund and capitalising a new vehicle to continue to own these high performing assets for anywhere between three to five years, and structuring these deals appropriately from an alignment perspective to ensure that there's a good path towards a good outcome for the secondary investors, including us.

Chris Conway: Gabriel, let's talk about private equity access as an asset class. Private equity is becoming more accessible, of course, via semi-liquid evergreen structures. What do investors need to know as they consider these investments?

Gabriel Ng: We've been encouraged by the growth in that part of the market. It's still fairly nascent, and I think the whole semi-liquid evergreen structure really helps to solve a lot of the pain points that have previously prevented individual investors, or small investors, from accessing what we believe is an attractive asset class. But at the same time, I think education, getting up to speed is super important because there are so many different funds and structures out there. It's important for an investor to know what he's getting into. What is the underlying strategy of this evergreen fund? What parts of the private equity segment is this fund going to be investing into? Who's the manager? Do they have a track record? Are they able to have the infrastructure to manage a large number of investors, provide the reporting, the communications? So there's a lot of factors to be considered, but I think we're just scratching the surface there. I think there's a lot more to grow in that space and we feel encouraged by the interest that we see to date.

Chris Conway: Gabriel, it's always a pleasure having a chat. Thanks for sitting down with Livewire.

Gabriel Ng: Thanks for having me. Chris.

Chris Conway: If you enjoyed that video as much as I did, make sure to give it a like, and don't forget to follow our YouTube channel because we're adding lots of great content every single week.

Managed Fund

Neuberger Berman Global Private Equity Access Fund (AUD)

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