Part 6/17:
This predicament turns the industry's focus increasingly toward attracting new investors—particularly retail investors through the recently sanctioned inclusion of private assets in 401(k) plans. However, this shift appears less about creating genuine financial innovation and more about the sector seeking fresh sources of capital amidst declining-exit opportunities.
The Myth of Operational Alpha and Heavy Leverage
A core narrative in private equity is the promise of "operational alpha"—the idea that skilled managers can transform underperforming companies into high-growth enterprises through operational improvements. Yet, the data tells a different story: most private equity gains are driven primarily by leverage, not operational efficiency.