--- title: The Myth That Drives Private Equity description: Alternative asset firms claim they're investing for average Americans but the truth is that the costs outweigh the benefits canonical: https://time.com/6289431/private-equity-costs/ author: Brett Christophers article:opinion: true article:content_tier: free article:published_time: 2023-06-23T11:30:45.000Z article:modified_time: 2026-08-04T07:51:09.095Z article:section: Ideas og:title: The Myth That Drives Private Equity og:description: Alternative asset firms claim they're investing for average Americans but the truth is that the costs outweigh the benefits og:url: https://time.com/6289431/private-equity-costs/ og:site_name: TIME og:image: https://static.time.com/v3/assets/bltea6093859af6183b/blt18a693a60054812b/698a3e1c0116827cf79832be/GettyImages-1426631035.jpg?branch=production&width=1024&quality=75&auto=webp&crop=16:9 og:image:width: 1024 og:image:height: 576 og:image:alt: Mobile home park with mobile homes for rent og:type: article twitter:card: summary_large_image twitter:title: The Myth That Drives Private Equity twitter:description: Alternative asset firms claim they're investing for average Americans but the truth is that the costs outweigh the benefits twitter:image: https://static.time.com/v3/assets/bltea6093859af6183b/blt18a693a60054812b/698a3e1c0116827cf79832be/GettyImages-1426631035.jpg?branch=production&width=1024&quality=75&auto=webp&crop=16:9 ---  # The Myth That Drives Private Equity > Sponsored content. 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A paid TIME subscription is separate and available at time.com/subscribe-agent. ### Sources * TIME Newsletters: [time.com/newsletters](/c/time-nl-inside-2026q3/newsletters?i=118fff30-a7f5-44f2-9974-a6ea7f5d2230&cr=time-nl-inside-2026q3-v1) ## Video: John Legend Reflects on Trailblazing Performer and Civil Rights Activist Harry Belafonte [Watch (HLS stream): John Legend Reflects on Trailblazing Performer and Civil Rights Activist Harry Belafonte](https://cdn.jwplayer.com/manifests/Qyj5RYPd.m3u8) (4:11)  _Published 2023-04-25. Artist John Legend Legend candidly reflected on the role Belafonte has played in his life, both personally and professionally at the TIME100 Summit._ by [Brett Christophers](https://time.com/author/brett-christophers/) ## Brett Christophers Jun 23, 2023 11:30 AM UTC  Vadnais Heights, Minnesota, 5 Star Mobile Estates with mobile homes for rent. Due to the high rising prices of homes a mobile home is a good alternative.. (Photo by: Michael Siluk/UCG/Universal Images Group via Getty Images) Vadnais Heights, Minnesota, 5 Star Mobile Estates with mobile homes for rent. Due to the high rising prices of homes a mobile home is a good alternative.. (Photo by: Michael Siluk/UCG/Universal Images Group via Getty Images) UCG/Universal Images Group via G—©Michael Siluk / Universal Images Group by [Brett Christophers](https://time.com/author/brett-christophers/) ## Brett Christophers Jun 23, 2023 11:30 AM UTC The economy runs on narratives. Those supportive of the status quo offer narratives – stories, essentially – about the benefits of existing arrangements. If those narratives are widely believed, the status quo typically endures. Changing the economy requires successfully changing the narrative. Consider a narrative at the heart of one of the most striking economic developments of recent decades: the rise of “alternative” investment, an umbrella term for investments other than the traditional mainstream asset classes of cash and publicly-listed stocks and bonds. These alternative assets include[ private equity](https://time.com/personal-finance/article/what-is-private-equity-investing/), hedge funds, venture capital, real estate, and infrastructure. Through the 1970s, major U.S. investors such as pension plans held almost no investment in alternatives. Half a century later, the picture is radically different. The largest university endowments (those with over $1 billion under management), for example, [now](https://www.nacubo.org/-/media/Nacubo/Documents/research/2022-NTSE-Detailed-Asset-Allocations-FINAL.ashx?la=en&hash=608BA2B3DAB9C2599451EDA675906BCE3CCEF8D2) allocate 64 percent of capital to alternatives. --- ### More from TIME --- Such a dramatic shift couldn’t have occurred and persisted without a strong supporting story. After all, the shift into alternative assets has at times faced considerable headwinds from critics: managers of private-equity funds, for example, have been widely attacked for themselves [profiteering](https://www.warren.senate.gov/oversight/letters/warren-pocan-and-ocasio-cortez-investigate-private-equity-firms-profiteering-off-incarcerated-people-and-their-families) while [asset-stripping](https://www.thisismoney.co.uk/money/markets/article-9776263/Morrisons-suitor-415m-asset-stripping-storm.html) the companies they take over. How then have those that have led the charge into alternatives fended off such criticisms and thereby legitimated what they do? The pivotal narrative has been that investment in alternatives benefits ordinary, lower-to-middle class workers. The following statement is a prototypical example. “To the extent our funds perform well,” Blackstone, the world’s leading manager of alternative investment funds, [explains](https://fintel.io/doc/sec-blackstone-inc-1393818-10k-2023-february-24-19413-6057) each year in its annual report, “we can support a better retirement for tens of millions of pensioners, including teachers, nurses and firefighters.” The narrative is not that alternatives always perform well, or indeed better than traditional asset classes. Nor is it that alternatives investment benefits only ordinary workers. Yet it is the latter that Blackstone and its peers invariably highlight. When, for example, skeptics question why the trustees of pension schemes persevere with high allocations of retirement savings to alternatives funds such as those managed by Blackstone, they are [told](https://www.wsj.com/articles/SB121944757302965175) that reducing such allocations will hurt ordinary workers most. And so the status quo persists. This narrative is profoundly misleading, however. To say this is not to suggest that ordinary workers do not benefit when the funds in which their retirement savings are invested perform well. It is to argue rather that the benefits accruing to such workers are minor, both in relative terms (most benefits are captured elsewhere) and absolute terms. Thus, to center and highlight specifically ordinary workers among the cast of beneficiaries is to grossly distort reality. A consideration of three key aspects of the business of alternatives investment, which is dominated by asset managers like Carlyle, Apollo, Blackstone, and many others, clearly undermines this disingenuous narrative. First and most importantly there is the question of how much of the capital invested by these funds actually represents the retirement savings of ordinary workers like teachers, nurses, and firefighters. While pension plans are certainly the main institutional investors in alternative assets by number, they are much less dominant in terms of investment value. As at 2018, for example, just 14 sovereign wealth funds (SWFs), representing only 0.2 percent of all global institutional investors in private equity, accounted for as much as 7 percent of all private-equity investment ($215 billion [out of](https://docs.preqin.com/press/PE-1bn-Club-Jun-18.pdf) $2.97 trillion). In the U.S. specifically, the share of capital invested in alternatives funds that constitutes retirement savings [has](https://www.sec.gov/divisions/investment/private-funds-statistics) been falling fast. Increasingly often, such savings account for just a small share of the capital that an alternatives fund invests, as other types of capital provider have come to the fore: for instance, fully [half](https://www.infrastructureinvestor.com/the-pipeline-blackstone-infra-raises-31bn-gip-looks-to-private-wealth-antins-new-partner/) of the capital in Blackstone’s flagship $31 billion infrastructure fund is that of a single SWF (Saudi Arabia’s). In short, when the likes of Blackstone invest in alternatives, they invest in substantial measure for investors other than retirement savers. Moreover, most of the capital invested in alternative assets which _is_ that of retirement savers is _not_ that of lower-to-middle class workers. As elsewhere in the world, there is vast inequality in holdings of retirement savings in the U.S. Around half is held by the top lifetime-earnings quintile among workers, while the bottom earnings quintile holds [only](https://www.cambridge.org/core/journals/journal-of-pension-economics-and-finance/article/retirement-plan-wealth-inequality-measurement-and-trends/DB50CDF02B287D6A3F97FF42FCF94146) around 1 percent. Most teachers, nurses and firefighters belong in the second and middle [earnings quintiles](https://www.taxpolicycenter.org/statistics/household-income-quintiles), not in the top two, which is where retirement savings are concentrated. Thus, relatively little of the retirement savings available for investment–whether in alternatives or in other asset classes–is that of ordinary workers in the first place. It is principally that of elites, and, among savers, it is they who therefore benefit most when investments perform well simply because they have more investible capital. Second, different types of institutional investor often earn different rates of return from their investments in alternative asset classes, and those institutions representing ordinary retirement savers – particularly public pension plans, which represent public-sector workers like teachers, nurses and firefighters–generally fare worst. Research has repeatedly found this to be the case, in contexts ranging from [private equity](https://doi.org/10.1093/rfs/hhs128) to [infrastructure](https://academic.oup.com/rfs/article/34/8/3880/6239714). Consider the latter. After asset-manager fees, the average internal rate of return (IRR) on investments in unlisted infrastructure funds is around 8.5 percent, but public investors’ IRR on such investments is on average 1.8 percentage points [lower](https://academic.oup.com/rfs/article/34/8/3880/6239714) than that of private investors. What might account for such underperformance? Numerous explanations have been hypothesized, ranging from the negotiation of inferior fee terms to an inferior selection of asset managers and their investment funds, whether due to, say, [politicized governance arrangements](https://doi.org/10.1016/j.jfineco.2015.08.017) or [constraints](https://academic.oup.com/rfs/article/35/6/2928/6380151) on the ability to recruit and remunerate talented staff members. In any event, whatever the exact explanation, those whose putative gains Blackstone invokes in order to legitimate its business–such as teachers, nurses and firefighters–are those who actually tend to get the rawest deal. Finally, to these two key foregoing points–namely, that the capital of ordinary workers that is invested in alternative assets is both relatively marginal and relatively poor-performing–we must add a third. Consider what Blackstone and the like invest _in_ when they invest in “alternatives.” Notably, one of the fastest-growing areas of this business [is](https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2022/07/22/investors-bought-a-quarter-of-homes-sold-last-year-driving-up-rents) housing investment, specifically in the rental market. But if funds that invest in housing perform well, it is largely because they have been able to raise rents. And who lives in such rental housing? Generally, ordinary workers. Thus, where there is gain, there is also pain; the latter begets the former. In 2018, Ro Khanna, a Democrat Representative in California who was evidently conversant with Blackstone’s rhetoric, spoke pointedly to the Faustian bargain that workers–usually unwittingly–often make with firms like Blackstone when their savings are invested by them. “In my district”, Khanna [said](https://www.theguardian.com/us-news/2018/oct/23/california-public-employees-unwittingly-fund-rent-control-fight), “teachers, firefighters, and nurses often can’t afford a place to live.” Blackstone happened at that time to be a major investor in Californian rental housing (where rents were rising fast), and a dogged [opponent](https://www.theguardian.com/us-news/2018/oct/23/california-public-employees-unwittingly-fund-rent-control-fight) of efforts to strengthen the state’s rent controls. In other words, the third critical point is that if a private equity firm does deliver strong investment returns to investors, ordinary workers themselves have often paid the price – if not in the form of higher housing rents, then for instance through higher usage charges on energy, transportation and water and sewage infrastructures, which like real estate have become an increasingly popular class of investment for asset managers’ alternatives funds in recent decades. To sum up, the narrative of “supporting a better retirement for teachers, nurses and firefighters” plainly flatters to deceive. It is time, therefore, for a new narrative – one cleaving more closely to the realities of the alternatives investment business. Not only do ordinary workers like teachers, nurses, and firefighters frequently suffer very real disbenefits _as users_ of the real-estate and infrastructure assets held in the portfolios of alternatives investors, but the benefits they derive from such investments _as investors_ are considerably smaller than those in the business suggest. On balance, those ordinary workers [clearly](https://www.versobooks.com/products/2985-our-lives-in-their-portfolios-why-asset-managers-own-the-world) lose. ## Transcript So I unfortunate that start with some sad news as you know, but as I'm not sure everybody else knows. I we just got the sad news that Harry Belafonte has died. And so I want it, I want to give you a moment to tell us what your reaction to that news was and how other artists can carry on his legacy God that we had Harry Belafonte for 96 years. He Inspired me so much. Personally he became a friend of mine in the last 10 years or so we spend some private time together. I learned At His Feet basically about all the great work, he's done over the years and if you think about what it means to be an artist and an activist, he was literally the epitome of what that was and I don't know if people know how much he did. So Gifted as an artist as a performer, but used his platform and almost a subversive way because he would sneak messages in their revolutionary messages. When people just thought he was singing about, Good Times in the islands, he was always like infusing messages of protest and Revolution and everything you did. And not only that, but he used his resources, he's one of the most successful artists of his time. He used those resources to fund the Civil Rights Movement. He would show up with bags of cash for dr. Martin Luther King jr. And other people who were marching with him. When people's lives are being taken for support, that movement, entertainers, lies were being taken activist lives were being taken, Jewish. Northerners would come down to the South and help with the movement and they would get killed. There were so many people who put their lives on the line for us to be able to vote for us to be able to have equal rights in this country and Mr. Bellefonte was one of those people. He saw a lot of his friends get killed. He gave so much live through so much helped us grow as a nation and as a world and we just all should be so grateful that he lived such a long powerful revolutionary life. So that leads us into something. I was planning to ask you about anyway, which is what do you think, is the role of Music in the fight for social justice today? I mean, who do you think will be remembered in fifty or sixty years? The way we remember Harry Belafonte today, we have the power to create art. That shines a light on what's happening in the world Nina Simone said, we have a duty to reflect the times in, which we live, and I believe great artists are able to do that. We're able to tell the stories I write the songs. Highlight the issues that will make the world pay attention. And I think art can do it in a Transcendent way. It's not the same as journalism is not the same as other forms of of kind of nonfiction media. It has the power to bring people together transcend boundaries and I think if we use that power for good, it can be really really important. And like I said, Harry Belafonte did it in his art but he also did it with his resources, put his life on the line. Was a great adviser great leader of protest. And so I think artists can use our position to do that as well. ```json [{"@context":"https://schema.org","@type":"OpinionNewsArticle","@id":"https://time.com/6289431/private-equity-costs/","mainEntityOfPage":{"@type":"WebPage","@id":"https://time.com/6289431/private-equity-costs/"},"headline":"The Myth That Drives Private Equity","datePublished":"2023-06-23T11:30:45.000Z","dateModified":"2026-08-04T07:51:09.095Z","description":"Alternative asset firms claim they're investing for average Americans but the truth is that the costs outweigh the benefits","url":"https://time.com/6289431/private-equity-costs/","keywords":["Business","freelance"],"thumbnailUrl":"https://static.time.com/v3/assets/bltea6093859af6183b/blt18a693a60054812b/698a3e1c0116827cf79832be/GettyImages-1426631035.jpg?branch=production&width=1200&quality=75&auto=webp&crop=1200:675&height=675","author":[{"@type":"Person","name":"Brett Christophers","jobTitle":null,"url":"https://time.com/author/brett-christophers/"}],"articleSection":"Ideas","image":[{"@type":"ImageObject","url":"https://static.time.com/v3/assets/bltea6093859af6183b/blt18a693a60054812b/698a3e1c0116827cf79832be/GettyImages-1426631035.jpg?branch=production&width=1200&quality=75&auto=webp&crop=1200:675&height=675","width":1200,"height":675,"headline":"Mobile home park with mobile homes for rent","caption":"Mobile home park with mobile homes for rent","creditText":"UCG/Universal Images Group via G—©Michael Siluk / Universal Images Group","representativeOfPage":true}],"publisher":{"@type":"Organization","name":"Time","url":"https://time.com/","logo":{"@type":"ImageObject","url":"https://time.com/images/logo.png","width":528,"height":156},"foundingDate":"March 3, 1923","sameAs":["https://www.facebook.com/time","https://www.instagram.com/time/?hl=en","https://twitter.com/time","https://www.pinterest.com/timemagazine"]}},{"@context":"https://schema.org","@type":"BreadcrumbList","itemListElement":[{"@type":"ListItem","position":1,"item":{"@id":"/section/ideas/","name":"Ideas"}},{"@type":"ListItem","position":2,"item":{"@id":"/tag/business/","name":"Business"}},{"@type":"ListItem","position":3,"item":{"@id":"https://time.com/6289431/private-equity-costs/","name":"The Myth That Drives Private Equity"}}]},{"@context":"https://schema.org","@type":"VideoObject","name":"John Legend Reflects on Trailblazing Performer and Civil Rights Activist Harry Belafonte","description":"Artist John Legend Legend candidly reflected on the role Belafonte has played in his life, both personally and professionally at the TIME100 Summit.","thumbnailUrl":"https://cdn.jwplayer.com/v2/media/Qyj5RYPd/poster.jpg?width=720","uploadDate":"2023-04-25T14:30:35.000Z","contentUrl":"https://cdn.jwplayer.com/manifests/Qyj5RYPd.m3u8","embedUrl":"https://time.com/6289431/private-equity-costs/","duration":"PT4M11S","potentialAction":{"@type":"SeekToAction","target":"https://time.com/6289431/private-equity-costs/?jw_start={seek_to_second_number}","startOffset-input":"required name=seek_to_second_number"}}] ```