Private equity is no longer a category call

Private equity has long enjoyed a reputation as a return engine, but Rachael Lockyer’s argument is that the asset class has changed fundamentally. It is no longer enough for advisers to decide they want exposure to private equity and assume that will do the heavy lifting.

In 2026, Lockyer says private equity has become a manager selection game, where dispersion between winners and losers is wider than ever and where yesterday’s top performers cannot be assumed to deliver tomorrow’s results.

Selection, not allocation, drives outcomes

Lockyer’s core point is uncompromising. “Private equity is a selection game, not an allocation game,” she said, and in the current environment that distinction matters more than ever.

The gap between top and bottom private equity managers has never been wider. Return dispersion now far exceeds other asset classes. Advisers can no longer assume most funds will deliver solid outcomes over time. In a more competitive, more mature industry, only the best managers are consistently generating cash exits and strong returns.

That widening gap, in Lockyer’s view, is what makes 2026 a defining year. In prior decades, even a middling fund could produce respectable results because the industry was younger, competition was lower and macro conditions were more forgiving.

Today, that is no longer true. She points to vintages where a meaningful share of funds are underwater, even as top managers continue to deliver exceptional outcomes. The implication for advisers is clear. Private equity still offers significant alpha potential, but only if the manager is right.

Her broader message is that private equity should be treated less like a generic asset class and more like an active skill set.

For MLC Asset Management, that has meant building long-term relationships, tracking managers over many years and constantly reassessing whether they remain aligned, relevant and capable. Lockyer’s phrase was striking, yesterday’s winners will not necessarily deliver tomorrow’s returns. That is a direct challenge to complacency in manager selection.

Alignment matters more as the industry matures

A second major thread in Lockyer’s remarks is that the industry’s incentives have become more complicated.

As private markets have grown, pressures on managers have intensified. Larger funds, new strategies and monetisation raise alignment risks. Evergreen structures, continuation vehicles and GP staking may help, but Lockyer warns they can dilute alignment if investors are not vigilant.

Her caution is especially sharp on fee structures. Advisers need to look carefully at whether managers are charging performance fees on unrealised gains, or whether growth in funds under management is beginning to matter more than real exits.

For Lockyer, private equity should still be an exit-driven business. If the manager is not returning capital and crystallising value, something important may be drifting. This concern about alignment extends to where in a manager’s life cycle MLC prefers to invest. One of Lockyer’s more provocative observations is that first funds are often where alignment is strongest.

At that stage, the GP commitment is financially meaningful, motivation is high and the team is often intensely focused on proving itself. By the third, fourth or fifth fund, she suggests that alignment can weaken as wealth accumulates and the economics change.

“The past PE winners won’t drive your clients’ next decade, but choosing tomorrow’s will.”

That does not mean experience is irrelevant. Quite the opposite. It means experience must be paired with scrutiny. Advisers and allocators need to know when to stay on the bus, and when to get off. Persistence in private equity, Lockyer argues, is much lower than many assume.

The best managers now win through operations

Lockyer also argues that private equity’s source of returns has shifted. Financial engineering has become commoditised, competition has increased and valuations are higher. That has pushed operational improvement to the centre of value creation. The best managers are the ones that can genuinely transform businesses, not simply buy them, lever them and hope for a benign exit market.

This is where her examples become especially useful. She described a Canadian insulation business that might have looked unremarkable on paper.

Yet under a strong private equity owner, with incentives pushed right through the organisation, the result was striking. Factory workers were given equity in the business, alignment filtered through the operation and the investment ultimately returned 4.1 times money in two and a half years.

The point is not just that the deal worked, but why it worked. Private equity outcomes increasingly depend on partnership, operational intensity and management alignment at every level.

Lockyer also sees AI as a differentiator, though not in the promotional sense. The strongest managers are using AI to improve sourcing, analyse industries more effectively and engage founder targets with greater precision.

In software, for instance, she described managers approaching founders with a prototype of what the business could look like in two years. That is a very different capability from traditional buyout pattern-matching. It suggests the winners in private equity will increasingly be those with better tools as well as better judgement.

Due diligence is where the edge is built

Perhaps the clearest expression of Lockyer’s philosophy is her emphasis on due diligence. Private equity, she argues, is a long-term relationship, one that often lasts longer than a marriage. That means the work upfront has to be forensic. Strategy, team stability, governance, attribution, fee leakage, co-investment conflicts and operational processes all need to be examined in depth.

Her remarks on team dynamics were particularly telling. Private equity firms are people businesses. A major risk is the spin‑out of mid‑level teams that drive performance.

Advisers looking at the sector need to understand who is incentivised, who is likely to stay and whether the economics are distributed in a way that supports long-term cohesion.

For Lockyer, private equity offers alpha only to those who are selective, sceptical and patient. The message for advisers is not to retreat from the asset class. It is to approach it with far greater precision. In a market defined by dispersion, manager selection is no longer a refinement. It is the whole game.