Why does Warren Buffett not like private equity?

Why Warren Buffett Distrusts Private Equity

Warren Buffett has long been vocal about his skepticism toward private equity, and it’s not hard to see why. At the core of his criticism are three persistent issues: misaligned incentives, excessive fees, and a troubling lack of transparency.

Buffett believes that the traditional “2 and 20” fee model—2% management fee plus 20% of profits—creates distorted motivations. When fund managers earn substantial fees based on the size of assets under management (AUM), their priority naturally shifts toward growing that AUM rather than delivering strong returns for investors. As Buffett sees it, this misalignment undermines the very principle of partnership.

“If you’re paying someone 2% just to play, and then handing over a fifth of the profits, you’re not investing—you’re subsidizing,” he once noted. In his view, true investment success should stem from shared outcomes, not guaranteed paychecks for fund managers.

Transparency is another sore point. Unlike publicly traded companies where performance is visible and accountable, private equity often operates behind closed doors. With little public scrutiny and sparse reporting, investors can find it difficult to assess real performance or understand how decisions are made. Buffett favors clear, open structures—like those at Berkshire Hathaway—where owners know exactly what they own and how it’s managed.

Moreover, Buffett’s own approach is fundamentally different. He builds value over decades, reinvests earnings, and prioritizes long-term stewardship over financial engineering. Private equity, by contrast, often relies on leverage, cost-cutting, and quick exits—a playbook Buffett considers short-sighted.