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, she 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 spread between top and bottom private equity managers has never been larger, with return dispersion now far exceeding that of other asset classes.

That means advisers can no longer rely on the old assumption that most private equity funds will produce solid outcomes over time. In a more competitive, more mature industry, only the best managers are consistently generating strong exits and cash 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, so too have the pressures on managers to raise larger funds, launch adjacent strategies and monetise their businesses in new ways. Evergreen structures, continuation vehicles and GP staking may all have a role, but Lockyer warns they can also dilute alignment if investors are not paying close attention. 

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. 

“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 of top quartile returns 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 strong exit market. 

This is where her examples become especially useful. She described a Canadian energy efficient insulation manufacturer 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. They’re also utilising AI carefully to drive operational efficiencies with positive ROI.  

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, and one of the greatest risks is often the spin-out of a mid-level team that has quietly become the real engine room.

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, then, private equity remains a compelling source of alpha, but only for those willing to be 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.

Disclaimers:

Ms Rachael Lockyer represents the MLC Private Equity Team (MLC Private Equity) acting under the AFSL of MLC Asset Management Pty Ltd (ABN 44 106 427 472, AFSL 308953). MLC Private Equity and MLC Investments Limited are part of the Insignia Financial Group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate. ). The Insignia Financial Group is ultimately controlled by CC Capital Partners LLC and its affiliates (a New York based private equity firm) and OneIM GP LLC and its affiliates (a London based private equity firm). No member of the Insignia Financial Group guarantees or otherwise accepts any liability in respect of MLC Private Equity’s services. This communication and the information in it is intended for licensed financial advisers and wholesale clients in Australia. It provides a general outline only and is not intended to be a definitive statement on the subject matter. It has been prepared without taking into account individual objectives, financial situation or needs and because of that investors should, before acting on the information in this communication, consider the appropriateness of the information having regard to their personal objectives, financial situation and needs. Any opinions expressed in this communication constitute MLC Private Equity’s judgement at the time of issue and are subject to change. Past performance is not an indicator of future performance. Forward-looking statements should not be relied upon. To the maximum extent permitted by law, neither MLC Private Equity, Insignia Financial Group nor their directors, employees or agents accept any liability for any loss arising in relation to this communication.