From this month, UK investors can hold private equity inside a Stocks and Shares ISA for the first time. The industry calls the advent of the private equity ISA democratisation. The evidence demands harder questions. Imagine you've been sent a glossy brochure. A private members' club, previously reserved for billionaires and sovereign wealth funds, is opening its doors. The promised returns look extraordinary. The brand names on the letterhead are reassuring. And the whole thing comes tax-wrapped: Long-Term Asset Funds, now eligible for your Stocks and Shares ISA. The curiosity is understandable. Private equity has generated genuine wealth for large institutions over decades. But is the version being offered to retail investors, through fund structures with layered fees and restricted liquidity, the same product in anything but name? Ludovic Phalippou, professor of financial economics at Oxford's Saïd Business School, puts it bluntly in his 2026 working paper on “private equity's retail turn”. Access is not the same as suitability. Extending a model built for institutional negotiation to ordinary households without changing the mechanics is closer to putting unlicensed drivers on the road than to the democratisation of transport. A Morningstar roundtable in December 2025 found that only a third of UK investment platforms were already offering LTAFs or actively working to onboard them. Even the plumbing to deliver this private equity ISA "opportunity" isn't ready yet. Recent research from Oxford and Harvard, together with verified product data, can answer the questions the brochure leaves open. Before you accept any invitation, it pays to read the house rules.
The returns aren't what the brochure suggests
The headline returns used to market private equity don't mean what most investors think they mean. Private equity reports performance using the internal rate of return, or IRR. This is a money-weighted measure, fundamentally different from the time-weighted returns used for public equities. IRR doesn't tell you how your wealth compounds. Early distributions from a fund mechanically inflate the figure, and the calculation assumes you can reinvest those distributions at the same rate. You almost never can. The result is numbers that look spectacular but don't correspond to reality. KKR reports a since-inception gross IRR of 25.5 per cent for its private equity programme going back to 1976. That figure has barely moved in nearly two decades of SEC filings. Apollo has reported since-inception IRRs of around 39 per cent year after year. These numbers aren't fabricated. But interpreted as compound wealth growth, they'd imply terminal values so large they'd strain credulity. They are reporting artefacts, not investor outcomes. What happens when you strip away the measurement distortions? Phalippou's research, published in the Journal of Investing in 2020 and updated in 2025, found that aggregate net private equity performance has been close to that of public equity over long horizons once appropriate benchmarks are applied. The supposed premium largely evaporates. The pattern holds for fund selection, too. Harris, Jenkinson, Kaplan and Stucke examined buyout fund performance persistence across decades. Their finding, updated in 2023: for funds raised after 2000, persistence has disappeared. Sorting funds into performance quartiles at the time of fundraising produced no significant differences in final outcomes. Picking winners in advance has become a coin toss. Harvard's Nori Gerardo Lietz reached the same conclusion through different data. Using Pitchbook's benchmarking methodology to create an IRR-to-IRR comparison with the S&P 500, she found that trailing 15-year direct alpha has vanished. The early decades of outperformance have become the industry's founding myth. Recent data tells a different story. The drinks taste about the same as the pub next door. The difference is what you're being charged for them. Some will argue that private equity offers diversification benefits beyond raw returns. But Lietz's data shows the opposite: recent quarterly rolling performance of mega buyout funds has been volatile and closely correlated with public markets. The diversification case is weaker than the marketing suggests.
The private equity ISA's hidden price list
Private equity's fee architecture was built for institutional investors who could negotiate terms. Retail investors in the new private equity ISA get the same costs, often more, with none of the bargaining power. Start with the institutional baseline. Phalippou and Gottschalg's research, published in the Review of Financial Studies in 2009, found that standard private equity fees reduce annual returns by around seven percentage points for the average fund. That's before retail adds its own layers. And retail adds plenty. Management and performance fees accrue at the fund level. Below that, portfolio companies pay monitoring fees, transaction fees and consulting charges to the PE firm itself. Phalippou, Rauch and Umber documented this hidden extraction in the Journal of Financial Economics in 2018. Most retail investors will never see these costs on any statement. On top come the distribution, platform and placement charges specific to the retail channel. What does this look like in practice? The Schroders Capital Global Private Equity LTAF, one of the few products with publicly available cost data, shows an OCF of 3.32 per cent on Hargreaves Lansdown's fund page. The PRIIPs key information document lists other ongoing costs of 2.98 per cent. Once underlying master fund costs and administrative expenses are layered in, the all-in annual charge exceeds three per cent. That's before the platform's own fee. The historical record for this layered structure is grim. Fund-of-funds vehicles, the closest existing proxy for how retail investors will experience private equity, have consistently underperformed both direct PE funds and public markets. Lietz's analysis of Pitchbook data shows their return multiple fell below 1.0 across most vintage years: investors would have been better off in a simple index tracker. Yale's legendary chief investment officer David Swensen didn't mince words, calling fund-of-funds "a cancer on the institutional investment world”. Perhaps the most troubling finding is what you can't find at all. Of the verified LTAFs approaching ISA eligibility, several don't publish full retail-style fee schedules in publicly accessible documents. The gap isn't in identifying these funds. It's in getting a straight answer on what they cost. No price list on the wall. And the bill arrives with charges you never agreed to.
Locked in with no clear way out
When you can't sell and the price is set by the people who sold it to you, the risks compound fast. LTAFs are not like the funds most UK investors know. FCA rules require a minimum 90-day redemption notice period. Dealing is monthly or quarterly, not daily. If too many investors want out at the same time, redemption caps kick in: typically five per cent of the fund's net asset value per dealing period. Exceed that threshold and your request is pro-rated, then rolled to the next window. The Schroders LTAF discloses an anti-dilution adjustment of up to five per cent on redemption proceeds. Aviva's public fund summary states that settlement, where requests are accepted, takes up to five months from the dealing cut-off point. Five months. Then there's the question of what your holding is worth. Private equity valuations aren't set by a liquid market. They are estimates, produced by or for the fund manager. Phalippou documented a striking case in 2024: Hamilton Lane's retail fund purchased PE stakes at roughly 80 per cent of stated NAV and marked them up to 100 per cent the next day. Large paper gains, overnight. When new investors subscribe at optimistic valuations, wealth quietly transfers to those already inside the fund. When Blackstone's BREIT trust met only a quarter of redemption requests in 2023, investors began asking whether the reported NAVs reflected prices anyone would pay. UK investors have seen this structural tension before. The Woodford Equity Income fund didn't collapse because one manager made bad calls. It collapsed because illiquid assets sat inside a vehicle promising daily dealing. LTAFs impose longer notice periods, but the core friction between illiquid underlying assets and retail expectations of access remains. The burden of proof sits with those opening the door, not those urging caution. The committee reserves the right to lock the doors if too many members try to leave at once.
Why the invitation arrived now
The private equity industry isn't opening its doors out of generosity. It has a liquidity problem of its own, and retail capital is the answer. The industry holds around $5.6 trillion of assets across more than 28,000 portfolio companies globally, but actual realisations over the past two years have totalled only $400 billion to $500 billion. Bain & Company's Hugh MacArthur has stated it could take years for this backlog to clear. More than $1 trillion of net asset value that should have been returned to investors remains locked in ageing fund vintages. Average holding periods now stretch past five years. Fundraising from institutional investors is in retreat. McKinsey's 2026 Global Private Markets Report recorded a 17 per cent year-on-year decline in closed-end PE fundraising globally, to roughly $616 billion. S&P Global data paints a sharper picture: PE fundraising fell to $480 billion in 2025, a third consecutive annual decline. Funds that did close typically did so at a 19 per cent discount to their target size. Behind this sits roughly $1.1 trillion in “dry powder”, or committed capital that must be deployed or returned. A quarter of it has been outstanding for four years. Partnership agreements contain "use it or lose it" provisions. Current US buyout entry multiples sit near 13 times EBITDA. Expensive, by any historical standard. As Lietz observes, the lack of exit activity at a time when public markets have been near all-time highs is hard to square with the portfolio valuations being reported to investors. If these holdings were worth what the books say, why aren't managers selling? The club needs your subscription fees.
What the evidence actually supports
You've now read the house rules. The performance figures that look extraordinary until you measure them properly. The fees buried in layers that no single document discloses. The locked doors and 90-day queues. And the industry's own reasons for sending you the brochure. None of this means private equity can't work. It has generated genuine wealth for institutions with the scale, expertise and bargaining power to negotiate terms, monitor valuations and absorb years of illiquidity. The question is whether the private equity ISA, sold through a platform to ordinary savers, offers the same proposition. The evidence suggests it does not. There's an irony worth noting. Lietz's research found that buying the listed shares of public PE firms like Apollo, Blackstone and KKR dramatically outperformed those firms' own private flagship funds over trailing five- and ten-year periods. Even researchers who study private equity professionally can see simpler, more liquid routes to the same exposure. The most reliable path to long-term wealth hasn't changed. Diversified, low-cost, evidence-based investing requires no locked doors, no hidden charges and no 90-day notice periods. You can adjust your portfolio when your circumstances change. You can see exactly what you're paying. And you can leave whenever you want. The private equity ISA will generate plenty of glossy brochures over the coming months. The smart money won't be rushing through this door. It'll be reading the house rules first.
Resources
Phalippou, L. (2026). Private equity's retail turn: anatomy of a mis-selling risk. Working Paper, University of Oxford, Saïd Business School. Phalippou, L. (2020). An inconvenient fact: private equity returns and the billionaire factory. Journal of Investing, 29(1), 11–39. Phalippou, L. (2025). Apples and oranges: benchmarking games and the illusion of private equity outperformance. Journal of Private Market Investing, forthcoming. Harris, R. S., Jenkinson, T., Kaplan, S. N., & Stucke, R. (2020, updated 2023). Has persistence persisted in private equity? Evidence from buyout and venture capital funds. NBER Working Paper No. w28109. Phalippou, L., & Gottschalg, O. (2009). The performance of private equity funds. Review of Financial Studies, 22(4), 1747–1776. Phalippou, L., Rauch, C., & Umber, M. (2018). Private equity portfolio company fees. Journal of Financial Economics, 129(3), 559–585. Gerardo Lietz, N. (2025). Should mom have private equity in her 401K? Harvard Business School Working Paper 26-026. Phalippou, L., & Magnuson, W. (2025). Private equity, public capital, and litigation risk. Working Paper, University of Oxford and Texas A&M University. Morningstar / The Platforms Association (December 2025). Roundtable findings on LTAF platform readiness. McKinsey & Company (February 2026). Global Private Markets Report 2026. S&P Global Market Intelligence (January 2026). Private equity fundraising totals continue to decline in 2025.
