What’s in this article
- What is the risk premium?
- Why may private equity command a premium?
- Why must the private equity premium be earned?
Private equity is often framed as an asset class that offers a potential return premium. That framing is directionally right, but incomplete. The more important question is where that premium actually comes from. In private equity, it is not just compensation for giving up liquidity, it is tied to the ability to influence outcomes. Unlike public markets, where investors largely observe and react, private equity introduces a more direct path to value creation, where ownership comes with a greater degree of control, engagement, and responsibility for results.
What is the risk premium?
In simple terms, a risk premium is the additional return investors seek for taking on a different or more demanding form of risk. In public equity, investors gain liquid exposure to companies through minority ownership positions that are priced daily by broad markets. In private equity, the investment looks different: the capital is less liquid, the work is more intensive, and the path to value creation is often more hands-on.
Why may private equity command a premium?
The most compelling case for private equity is simply that private equity investors often have greater influence over outcomes because they are typically focused on longer-term results.
Private equity firms typically underwrite more than just the business as it exists today. They are underwriting a plan: how to improve operations, sharpen strategy, allocate capital, strengthen management, pursue acquisitions, or reposition the company for its next stage of growth. In many cases, that plan is backed by fully controlled governance rights and control that public market investors rarely have.
That distinction matters. Public equity often centers on security selection, identifying attractive companies and waiting for value to be recognized. Private equity, by contrast, can involve ownership with agency: the ability to help shape the result rather than simply observe it.
There is also a market structure component. Private markets are often less efficient, less broadly covered, and more dependent on access, diligence, and execution than public markets. That can create more room for skilled investors to differentiate, but only if they have the sourcing, underwriting, and operational capabilities to do so.
Why must the private equity premium be earned?
That is why the private equity premium should never be viewed as automatic. It must be earned through disciplined entry prices, rigorous underwriting, active ownership, and thoughtful execution over time.
For investors, the real comparison is not whether private equity is “better” than public equity. It is that the two offer different forms of equity exposure. Public markets provide liquidity and transparency. Private equity offers the potential for a differentiated premium rooted in control, engagement, and value creation.
At its best, private equity is not just about taking more risk, it is about having a greater ability to influence outcomes, and that is ultimately where the premium is earned.
Acknowledgment and Disclaimers
The materials contained herein are for information purposes only and do not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles.
Statements contained herein reflect the subjective views and opinion of Sagard and may not be able to be independently verified. These materials are being provided solely for informational purposes and are not intended to be, and shall not be regarded or construed as, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services, nor as a recommendation for a transaction or investment, including without limitation an offer to purchase, sell or hold any security investment, loan or other financial product or to enter into or arrange any type of transaction. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Sagard shall not be responsible for any loss sustained by any person who relies on this publication.
Like all investments, an investment in private markets involves the risk of loss. Investment products such as private market investments are designed only for sophisticated investors who can sustain the loss of their investment. Accordingly, such investment products are not suitable for all investors. Private market investments are not subject to the same or similar regulatory requirements as mutual funds or other more regulated collective investment vehicles.
Certain statements and certain of the information contained in these materials represents or is based upon “forward-looking” statements or information based on experience and expectations about these types of investments. The forward-looking statements in these materials include statements with respect to, among other things, projections, forecasts or estimates of cash flows, yields or returns, scenario analyses or proposed or expected portfolio composition and anticipated future events, performance or expectations. Forward-looking statements are inherently uncertain and are not guarantees of future performance and are subject to many risks, uncertainties and assumptions that are difficult to predict. No representation or warranty, express or implied, is made as to any forward-looking statements and information and no undue reliance should be placed on such forward-looking statements and information. Sagard has no obligation and does not undertake to revise or update these materials or any forward-looking statements set forth herein, except as required by law.
The information in the attached materials reflects the general intentions of Sagard. There can be no assurance that these intentions will not change or be adjusted to reflect the environment in which Sagard will operate.
Past performance and historic information is not necessarily indicative of future activities or returns, and there can be no assurance that comparable results will be achieved.
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The information contained herein is in summary form for convenience of presentation. It is not complete and it should not be relied upon as such. Sagard makes no representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein.
All information is presented as of March 2026 unless otherwise stated.
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