In an investment landscape dominated by low-fee, passively managed funds, private equity is not stepping back--it is stepping forward with renewed clarity and purpose, says 
Far from fading into irrelevance, PE is becoming an essential allocation in the modern portfolio, Pesch insists. “Private equity has always been about long-term value creation, strategic ownership and performance beyond market beta--and that has not changed,” he stresses. “What has evolved is the broader investment landscape: investors today are more cost-conscious, data-driven and diversified, with passively managed funds like ETFs playing an increasingly central role in portfolio construction.” Rather than seeing passive investing as a threat, Pesch presents a model of complementarity. PE, he argues, offers what exchange-traded funds (ETFs) simply cannot: “Passive strategies can’t provide access to illiquid, high-growth private businesses, nor can they drive transformation within them. That is where PE shines.”
“PE is no longer just a capital pool--it’s an active capability,” he adds, highlighting operational expertise, technology integration, ESG frameworks and strategic partnerships as defining features.
At one point in the discussion, Pesch reminds us that the LPEA “highly respects the diversified portfolio construction exercise of all [classes of] investors,” adding that every product has certain characteristics “which make them all interesting and quite often complementary.” A different mix of strategies, he suggests, may be useful for different objectives.
Raising the bar, not closing the doors
“There’s no doubt that the rise of passively managed funds--particularly ETFs--has reshaped investor expectations around cost, liquidity and ease of access,” Pesch concedes. “But rather than directly displacing private equity, they’ve forced all asset managers, including PE firms, to sharpen their value proposition and innovate their approach to fundraising.” The result? A wave of innovation. “We are seeing new strategies such as private debt, infrastructure, secondaries, etc.; growth in semi-liquid and evergreen fund structures; lower minimums via feeder platforms; and more investor-friendly reporting.”
For investors, passive funds have lowered overall portfolio costs, “freeing up room to pursue alpha elsewhere.” As Pesch puts it: “The comparison is increasingly about role, not rivalry.”
Valuations: embracing transparency
“The rise of passively managed funds has changed how investors think about value--particularly around transparency, pricing discipline and market efficiency,” notes Pesch. In response, PE firms are leveraging technology to deliver more accurate, real-time data-centric analytics. “More sophisticated, tech-enabled valuation models that integrate operational KPIs, market comps and scenario analysis” are becoming the norm.
With this comes a more disciplined approach to deal-making. “Firms are not just paying attention to what they pay, but to how and where they plan to drive returns.” This shift is also structural: “We are seeing more earn-outs, minority stakes and structured equity--approaches that offer downside protection in uncertain environments or allow access to high-quality assets at more rational prices.”
Allocating more capital to managers who demonstrate a clear edge in sourcing, value creation and sector expertise.
Fundraising: quality over quantity
As investor expectations evolve, so too does the fundraising environment. “The shift is not away from PE--it is toward fewer, deeper relationships,” says Pesch. Limited partners are “allocating more capital to managers who demonstrate a clear edge in sourcing, value creation and sector expertise.” Today’s fundraising cycles are longer, with more rigorous due diligence. “Gone are the days of oversubscribed closings in a matter of weeks,” Pesch notes.
Niche and thematic strategies are gaining traction--in tech infrastructure, energy transition and regional growth. Meanwhile, new investor types are entering the mix. “Institutional capital remains dominant, but the next frontier is retail--particularly high-net-worth individuals, mass affluent investors, insurances and private banks.”
Rising rates: back to business fundamentals
As interest rates rise, the era of leverage-fuelled returns is waning. But private equity is not being undermined--it’s adapting. “In a world where financial engineering and leverage are less effective, alpha must come from hands-on business transformation,” says Pesch. “PE firms are doubling down on operational improvements--from digitalisation to supply chain optimisation to margin expansion.”
Pesch notes that passive investing has reshaped portfolio construction by “offering low-cost, efficient exposure to broad markets,” but private equity remains a distinct and irreplaceable component. “PE differentiates itself in three key ways,” he says. These include “control and active ownership, long-term investment horizons and access to proprietary deal flow and sector expertise.”
He further adds that most investors already hold a mix of strategies, products and liquidity profiles. In this context, “it is essential to select best-in-class investments of each category in order to build the right portfolio and reach the defined performance.”
Global strategy, local edge
Private equity’s evolution is global. In emerging markets, it provides access where public markets fall short. “Private equity can directly access high-growth private businesses… unlocking growth that passive vehicles can’t reach.” And in mature markets, success is execution-based: “With high competition and modest economic growth, outperformance increasingly relies on operational enhancement, sector specialisation and strategic acquisitions.” From ESG in Europe to digital growth in Asia, PE is tailoring strategies to local dynamics--something passive vehicles struggle to replicate.
“Through evergreen funds, feeder structures, tokenisation, partnerships with private banks and insurances, private equity will become increasingly available to high-net-worth individuals, retirement savers and smaller institutions,” says Pesch. “The experience will become more user-friendly, liquid and technology-enabled--taking cues from the accessibility of passive investing.”
Relevance through specialisation
What keeps PE competitive in a commoditised world? Focus, claims Pesch. “As allocators become more values-driven, PE will evolve from generalist strategies toward high-conviction, thematic investing--in areas like climate innovation, digital infrastructure, life sciences or demographic change.” And it’s not just strategy; it’s execution. “From portfolio monitoring to investor reporting, firms will increasingly leverage AI, automation and data platforms to streamline processes and offer real-time insight.”
“Private equity has always thrived at the intersection of change and opportunity… while passive funds provide efficient exposure to existing markets, PE is increasingly focused on creating new value in emerging sectors, geographies and business models.” Whether it’s AI logistics, clean energy or healthcare transformation, PE is shaping the future, argues Pesch, not just reacting to it. “It’s not about mimicking passive strategies, but learning from them.”
Pesch believes that private equity is not resisting the passive revolution--it’s responding with agility, insight and innovation. As he puts it: “Private equity will remain active at its core--but more accessible, specialised and tech- enabled”--and it is inherently becoming “more scalable, more inclusive and even more relevant in the portfolios of tomorrow.”
This article was written for the Alternative Assets supplement to the Nexus 2025 issue of Paperjam magazine, published on 12 June. The content is produced exclusively for the magazine. It is published on the site to contribute to the full Paperjam archive. Click this link to subscribe to the magazine.
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