Can passive PE investing enhance portfolio performance?

Can passive PE investing enhance portfolio performance?

Emily Lai

Fri, August 28, 2026 at 7:38 PM GMT+3 5 min read

Featured image by Josie Doan/PitchBook

The private markets have always sold two things: access and selection, but a New York-based firm is challenging the traditional model.

At the start of the summer, private markets index manager NewVest became the first PE fund manager to launch a closed-end fund strategy on the London Stock Exchange Group's blockchain-powered Digital Markets Infrastructure platform.

DMI lets fund managers issue fund interests as digital tokens and automate back-office fund administration, making it easier to sell stakes in funds to family offices, wealthy individuals, and other non-institutional investors, alongside the usual institutional LPs.

While this may be a first for the LSE, NewVest launched its first investable passive private markets index fund in 2023 and has completed commitments to almost 190 private market funds.

For its flagship PE50, it identifies the largest PE funds expected to raise capital in the year and commits capital to the 50 largest funds that satisfy its pre-defined investment criteria, and are open and available for the firm to invest in. Following a logic similar to that of a market-cap-weighted stock index, the commitments are capital-weighted based on each underlying fund's target capitalization.

Instead of trying to identify outperforming managers, the model hinges on the fact that these funds usually capture more than 70% of the asset class's capital raising in that vintage and that buying all of them, weighted by size, gets an investor close to the pooled capital-weighted net returns of the asset class as a whole without having to pick a single winner.

"Investors are always trying to find top quartile funds, but it's extremely difficult to do so consistently since—as academic research has consistently shown—managers exhibit limited persistence of relative performance from one fund to the next. In other words, a manager's past top-quartile performance is not in any way indicative that top-quartile performance will continue to be achieved in that manager's successor funds," said Edward Talmor-Gera, founder and CEO of NewVest.

For now, institutional capital accounts for about 56% of the total commitments raised from third-party investors, with the remaining coming from high-net-worth individuals or family offices.

Out of the pool of high-net-worth capital, more than half came from senior private markets professionals.

It is a new route and it is a new way of packaging, but it is all the same underlying product and it is still illiquid

Matthew Craig-Greene, Wagtails

The vehicle is part of a burgeoning ecosystem of products, including evergreen funds and other open-ended structures, serving a growing demographic of individual investors in private markets.

According to PitchBook's 2030 Private Market Horizons report, total evergreen AUM reached $3.2 trillion at the end of 2025, and it is projected to reach $5.2 trillion by 2030, a 10.2% compound annual growth rate that is almost double the projected growth rate for overall private market AUM.

However, these funds saw the first major stress test this year when wealthy individuals tried to cash out of the semi-liquid funds at once, forcing some managers to prorate or restrict redemptions.

NewVest, on the other hand, is trying to expand the reach of its products through a closed-end structure with a traditional 10-year lock-in. The funds also have extensions as necessary to match any applicable extensions of their underlying funds. They do not offer redemption rights, although investors may be able to sell their interests through secondary transactions, including to existing NewVest investors.

While there might be greater certainty about redemption terms in closed-ended products, such a commitment requires a decade-long horizon, even as the market has shown that investors can reach for the exit in much shorter timeframes.

"It is a new route and it is a new way of packaging, but it is all the same underlying product, and it is still illiquid," said Matthew Craig-Greene, founder of private markets consultancy firm Wagtails. "It is the same underlying private market company that you are in. Ultimately, you can synthetically move the needle when it comes to liquidity but you're still in the same product in the end."

Reallocating resources

For the institutional investor base, NewVest's passive route into private markets can offer a lower-cost option that takes no management fee and a 6% back-ended carry to take a position in PE, where larger funds receive larger weightings.

LPs are increasingly choosing mega-fund exposure not because it outperforms, but since it offers tighter return dispersion and lower downside risk than picking managers individually, according to PitchBook's Q2 2026 Analyst Note: US Private Equity's New Fundraising Reality.

The spread between top- and bottom-quartile returns for the more recent vintages stands at 5.7 percentage points for mega-funds, compared to 12.6 points for middle-market managers.

"I believe there is a place in many investors' portfolios to have a core position in an index product, or across multiple index products, which is often the case with liquid portfolios, which may provide more diversification, with potentially lower volatility and also lower costs," said NewVest's Talmor-Gera.

Despite not directly targeting the highest-performing funds, Craig-Greene believes the model can help institutional investors boost performance by reallocating their resources.

By outsourcing mega-fund selection to an index-style vehicle, firms can free up capacity to spend on the mid-market, where manager selection is argued to matter more because performance dispersion is wider.

This is especially important as LPs are increasingly seeking to be more actively involved in managing their own portfolios, including participating in continuation funds and co-investments, but may lack the internal resources to do so.

According to the latest Limited Partners Sentiment Survey from the Institutional Limited Partners Association, more than half of organizations rely on as many as three staff members to manage PE investments, with larger organizations having larger front office teams. Fewer than 40% of respondents plan to hire in the next year.

With slower exits, portfolio construction is increasingly important for LPs to manage liquidity and asset allocation. The passive investing model could offer a new tool when capacity is stretched everywhere else.

This article originally appeared on PitchBook News