Asset Allocation: PE vs. Public Markets, Diversification Is Still a Good Pitch

Section II: Opportunities for LPs · from The State of Private Equity, Part 2B: Challenges and Opportunities for LPs.

Despite a tough fundraising and liquidity environment, private equity's return case remains intact over the long run. US public equities have modestly outperformed buyout funds at the 5- and 10-year horizons (17% vs. 14%, and 16% vs. 15%, respectively), but buyout funds actually lead over a 20-year horizon (13% vs. 10%). Geographically, private equity outperforms public-market equivalents across every horizon shown in Western Europe, including a wide 14% vs. 6% gap over 20 years.²⁴ Top-quartile funds beat public-market averages by an even wider margin in both regions.²⁴

Chart in the full report — source: Bain²⁴

That outperformance is precisely why LPs continue to show up. But when asked directly what they value most about private equity, LPs in Preqin's June 2025 Investor Outlook Survey pointed to diversification, not returns, as the top rationale for investing in the asset class.²⁴

For LPs navigating a period of muted public-market comparisons and elevated cross-asset correlation, that diversification case may be the more durable argument going forward.

Chart in the full report — source: Bain²⁵

KKR's multi-asset forward return estimates reinforce the same conclusion. They project private equity to generate among the highest expected returns of any asset class KKR tracks over the next five years, modestly ahead of private infrastructure and comfortably above core fixed income, direct lending, and cash.²⁶

Chart in the full report — source: KKR²⁶