April 2025 brought unprecedented volatility to the US equity markets. Escalating trade disputes culminated in a “tariff tsunami,” which indiscriminately hit every sector and region. In just 48 hours, on April 2 and 3, nearly $7 trillion in market value was wiped out, marking the largest two-day loss in financial market history. For perspective, that figure is roughly twenty times the size of the Czech economy.

Less than a week later, the S&P 500 staged a dramatic single-day rebound of 10%, its strongest gain in a day since the 2008 global financial crisis. Are these swings exceptional, or are we entering a structurally more volatile era?

In this environment, investors are urgently reassessing how to protect their portfolios while still achieving long-term growth. One increasingly relevant option is private equity. Unlike public equities, which are subject to daily fluctuations and sentiment-driven pricing, often detached from fundamentals, private equity operates on fundamentally different principles.

These investments rely on long-term capital commitments and active ownership. Investors typically acquire controlling stakes in companies and participate directly in their management, aiming to exit several years later with a strong return.

Private equity has historically shown greater resilience during market downturns. During the 2008 crisis, for example, the S&P 500 declined by about 55% from peak to trough. In comparison, US private equity fell by just 28%, demonstrating both stronger downside protection and faster recovery relative to public markets.

Another major advantage is access to a much broader universe of companies. More than 90% of businesses with over $100 million in annual revenue are privately held. Industry leaders like SpaceX, OpenAI, Huawei, Deloitte, and Mars all remain outside the public markets.

Because private equity operates in a less transparent setting, experienced investors can uncover undervalued or fast-growing firms long before they reach public exchanges. In contrast to public markets, where information is widely disseminated and prices are heavily scrutinized, the private market still offers inefficiencies and hidden opportunities.

However, this lack of transparency also raises the bar for due diligence. What may appear as a rare find to a seasoned investor can easily turn into a value trap for the unprepared. Opaque financials, overstated growth narratives, or hidden liabilities can all result in significant losses when misjudged.

Until recently, elite private equity funds were largely closed off to all but the largest institutions. Now, firms like Blackstone, Apollo, and KKR have opened select vehicles to high-net-worth individuals, with minimums starting at $25,000. This shift also reduces structural inefficiencies.

Direct access eliminates the layering of fees common in feeder funds and fund-of-funds structures, which are increasingly prevalent in Central Europe but often erode returns. Even a 2% annual fee, including entry, management, and performance components, can become a meaningful drag over time. Through compounding, a 2% yearly cost can reduce an investor’s total returns by more than 40% over a 30-year period.

While large-cap private equity funds offer certain benefits, mid-market funds have consistently outperformed over time. Over the past 30 years, mid-market funds have delivered average annual returns of approximately 19%, compared to 13–14% for large-cap private equity and 9–10% for the S&P 500. A 19% return may seem like only a modest premium over 10%, but over three decades, that difference results in more than a tenfold capital increase.

Despite this strong track record, most individual investors still allocate only around 5% of their portfolios to private equity. In contrast, leading institutional investors, such as university endowments and pension funds, often commit up to 50% of their capital to the asset class.

In a world where volatility has become routine and traditional assets struggle to preserve real value, private equity is emerging not just as an alternative, but as a necessity. Still, the asset class demands expertise, patience, and access. Without these, the risks can quickly outweigh the rewards.

The original article can be accessed at Seznam Spravy.