Why doesn't Warren Buffett like private equity?

Why Warren Buffett Distrusts Private Equity

Warren Buffett has never been shy about his skepticism toward private equity, and for good reason. Unlike the flashy promises of outsized returns, Buffett’s approach has always been rooted in simplicity, transparency, and alignment of interests. When it comes to private equity, he sees something almost opposite: a world where incentives are often misaligned, fees are high, and clarity is in short supply.

His first issue? Misaligned incentives. In many private equity firms, managers are more focused on growing assets under management (AUM) than on delivering real performance. With the classic "2 and 20" fee structure—2% management fee and 20% of profits—there’s less pressure to generate strong returns and more incentive to simply pile on more capital. Buffett finds this troubling. Why would a manager prioritize long-term value when their paycheck is guaranteed regardless?

Then there’s the problem of excessive fees. Even mediocre performance can generate massive payouts for fund managers, while investors shoulder the risk. Buffett, who famously invests alongside his shareholders and lives by the mantra of "skin in the game," finds this disconnect offensive to sound business principles.

Finally, low transparency makes private equity a black box. Buffett prefers businesses he can understand—ones with clear earnings, honest leadership, and visible operations. Private equity, with its complex structures and opaque reporting, doesn’t fit that mold.

At its core, Buffett’s critique isn’t just about finance—it’s about ethics. He believes in partnerships built on trust, not structures designed to enrich managers at the expense of investors. In a world chasing quick multiples, Buffett remains a voice for patience, clarity, and integrity.