The $1 trillion shortfall if private equity bets turn sour

Investors have to keep sending money to private equity firms even if returns crumble in a downturn

Institutional allocations to private markets have surged in recent years. Large US endowment funds lifted their allocation to private equity and venture capital from 19% to 30% between 2018 and 2021, eclipsing their holdings of public equities. There is no sign that this growth is about to tail off. Quite the opposite in fact.

This large allocation has worked well. Private equity and venture capital outperformed the S&P 500 by nearly 3.5% per annum from 2007 to the end of March last year. It is