Private equity’s edge lies in discipline, access and execution

Private equity’s pitch to advisers has long centred on outperformance, but Michael Lukin argues that framing misses the point. The real value lies in accessing parts of the economy that public markets no longer reflect, and in actively building better businesses over time.

At a time when listed markets are narrowing and capital is concentrating; his message is notably grounded. Private equity is not about financial engineering, it is about ownership, discipline and execution.

The mid-market is where change happens

Lukin’s central thesis is that the mid-market remains the most compelling segment. These are businesses that have survived early-stage fragility but have not yet institutionalised, often sitting between $50 million and $500 million in size. They have proven products and revenue, but lack the structure and depth required for their next phase of growth.

“You have businesses that have gone through that valley of death,” he said. “They’ve become real companies, but they’ve still got gaps.”

Those gaps are typically concentrated in leadership and capability. Founders are still wearing multiple hats, acting as CEO, CFO and head of sales simultaneously. Growth has outpaced governance, and capital has often been constrained by personal balance sheets. This creates a clear entry point for private equity, not as a rescuer, but as a partner at an inflection point.

Lukin describes this as “transitory capital”, moving businesses from founder-led enterprises to scalable corporates. Over a three to five year period, that transition can materially expand the opportunity set, opening pathways to IPOs, strategic buyers or larger global private equity firms. The value lies in preparing the business for that next owner, not simply holding it.

Value creation is operational, not financial

A key misconception Lukin pushes back on is that private equity returns are driven by leverage or market timing. In his view, the primary driver is operational improvement, particularly through people. The ability to professionalise a business, build out management teams and introduce experienced executives is often underestimated.

“What’s really underestimated is the ability to bring high quality people into businesses,” he said.

Private equity ownership enables access to talent that many founder-led businesses would struggle to attract independently. Experienced executives are increasingly drawn to the model, attracted by performance-linked incentives and the opportunity to work intensively over defined timeframes. This shift has changed the calibre of leadership available to mid-market companies.

“Private equity should be all about returns, but it’s also about diversification.”

This operational focus extends to exit strategy. Founders often build businesses around personal preferences, whereas private equity reframes the business through the lens of a future buyer. That may involve stepping back from day-to-day management, formalising governance or reshaping growth strategies. The goal is to create an asset that is transferable, scalable and attractive to institutional capital.

Public markets are no longer enough

Lukin’s argument also reflects structural changes in public markets. In Australia, concentration risk is increasingly difficult to ignore, with the ASX dominated by financials and resources. That limits both growth potential and diversification for portfolios constructed solely from listed equities.

“The ASX 20 is more than 60 per cent of your portfolio,” he said. “You basically have a bunch of banks and a bunch of miners.”

At the same time, many high-growth companies are choosing to remain private for longer, supported by deep pools of capital. This has reduced the pipeline of new listings and shifted innovation away from public markets. For advisers, the implication is clear. Accessing growth increasingly requires exposure to private assets.

Private equity offers that access across sectors such as healthcare, technology and consumer businesses, areas that are underrepresented locally. Lukin points to consistent earnings growth within portfolios, even in challenging macro conditions, as evidence of this structural advantage.

Manager selection and liquidity still matter

Despite the opportunity, Lukin is unequivocal that outcomes in private equity are highly dispersed. Manager selection is critical, and unlike public markets, past performance can be a meaningful indicator of future success. The best managers develop repeatable advantages, including proprietary deal flow, operational expertise and strong executive networks.

“Private equity breaks the rule that past performance is no guide,” he said. “The best managers continue to outperform.”

Alignment is another non-negotiable. Advisers must understand where capital is flowing and why, ensuring they are not simply providing liquidity for existing investors. Lukin’s advice is direct, follow the incentives and interrogate the structure of each deal.

Liquidity, often cited as a barrier, is better understood as a portfolio construction question. Private equity is not designed for short-term capital needs, but for long-term, often intergenerational wealth. Once portfolios mature, distributions can create a self-funding dynamic, reducing the practical impact of illiquidity.

“A lot of wealth is actually intergenerational,” he said. “How much can we lock up for five to ten years?”

For advisers and asset consultants, that framing is critical. Private equity is not suitable for every client, but for those with long investment horizons, it is becoming an increasingly necessary allocation. In Lukin’s view, it is no longer an alternative, but a core component of a modern portfolio.