7 Mistakes Accredited Investors Make with Private Equity (and How to Fix Them)

Private equity has become one of the most sought-after asset classes for accredited investors looking to generate outsized returns. And for good reason: PE has historically outperformed public markets over the long haul.

But here's the thing: the same characteristics that make private equity attractive also make it easy to mess up. Less regulation, limited transparency, and longer time horizons mean there's more room for error.

I've seen plenty of smart, sophisticated investors stumble when it comes to PE. The good news? Most of these mistakes are completely avoidable once you know what to watch out for.

Let's break down the seven most common mistakes accredited investors make with private equity: and more importantly, how to fix them.

Mistake #1: Diving In Without Clear Investment Goals

This one sounds basic, but you'd be surprised how often it happens. Investors hear about a "hot" private equity opportunity and jump in without asking themselves some fundamental questions first.

What's your time horizon? What returns are you actually targeting? How much volatility can you stomach?

Without clear answers, you're essentially flying blind. You might end up in a growth-stage tech fund when you really needed stable cash flow. Or you might commit capital for 10 years when you'll need liquidity in five.

The Fix: Before you look at a single deal, write down your investment objectives. Be specific. "I want to allocate 15% of my portfolio to PE with a 7-10 year horizon, targeting 15%+ IRR, and I can accept high volatility because this isn't money I'll need." That clarity will save you from chasing the wrong opportunities.

Mistake #2: Putting Too Many Eggs in One Basket

Concentration risk is a killer in private equity. I get it: when you find something you believe in, you want to go big. But loading up on a single fund, sector, or vintage year is asking for trouble.

Private equity already carries more risk than public markets. When you add concentration on top of that, you're amplifying an already volatile asset class.

The Fix: Diversify across multiple dimensions. Spread your PE allocation across different managers, strategies (buyout, growth, venture), sectors, and vintage years. This doesn't mean you need 50 positions: even 5-7 well-chosen investments across different categories can significantly reduce your risk profile.

Think of it like the 40/30/30 model we often discuss with clients: balancing traditional assets, alternative investments, and newer opportunities like digital assets. Diversification isn't just about having more positions: it's about having the right positions that don't all move together.

Mistake #3: Misjudging Your Risk Tolerance (and Capacity)

There's a difference between risk tolerance and risk capacity, and confusing the two can lead to serious problems.

Risk tolerance is psychological: how much volatility you can handle emotionally without making panic decisions. Risk capacity is financial: how much you can actually afford to lose without derailing your life.

Some investors overestimate both and take on PE exposure they can't afford. Others underestimate their tolerance and stay too conservative, missing out on returns their portfolio could handle.

The Fix: Be honest with yourself on both fronts. If a 30% drawdown would keep you up at night, factor that in. If losing your entire PE allocation would materially impact your lifestyle, you're probably overallocated. The sweet spot is where your psychological comfort meets your financial reality.

Mistake #4: Skimping on Due Diligence

Here's where private equity really differs from public markets. When you buy Apple stock, you have years of audited financials, analyst coverage, and regulatory oversight helping you make an informed decision.

With private equity? You're largely on your own.

The less-regulated nature of private markets means the burden of due diligence falls squarely on you. And trust me, glossy pitch decks and impressive track records can hide a lot of problems.

The Fix: Treat due diligence like your full-time job (or hire someone whose full-time job it is). That means:

• Financial analysis: Don't just look at projections: stress test them. How do returns look if growth is 20% slower than expected?

• Market analysis: Understand the competitive landscape. Is there a real moat here?

• Team assessment: The management team matters enormously in PE. What's their track record? Have they navigated downturns before?

• Legal review: Read the fine print. What are the fees? What are your rights as an LP?

• Reference checks: Talk to other investors in previous funds. What was their actual experience?

Mistake #5: Underestimating Illiquidity (and Fraud Risk)

Private equity isn't like a stock you can sell on Monday if you change your mind. Your capital is typically locked up for 7-10 years, sometimes longer. And unlike public securities, there's no daily price quote telling you what your investment is worth.

This illiquidity premium is part of why PE can generate higher returns. But it also means you need to be absolutely certain you won't need that money.

There's also the fraud angle. Private, unregistered securities have minimal reporting requirements. While outright fraud isn't common, it does happen. And by the time you discover it, your capital is already gone.

The Fix: Only commit capital you can genuinely afford to lock away for a decade. Build your liquidity reserves first. And on the fraud front? If something seems too good to be true, it probably is. Verify everything independently. Check the backgrounds of the people involved. If a manager is reluctant to provide references or documentation, that's a red flag.

Mistake #6: Letting Emotions Drive the Bus

FOMO is real in private equity. When you hear about a fund that returned 3x in five years, it's hard not to want a piece of the next one. When markets are booming, everyone wants exposure. When they're crashing, everyone wants out.

This emotional cycle leads to exactly the wrong behavior: buying high and selling low (or worse, committing to a fund at exactly the wrong point in the cycle).

The Fix: Create an investment policy statement before emotions get involved. Define your allocation targets, rebalancing triggers, and commitment schedule in advance. Then stick to it. The best time to commit to PE often feels like the worst time: when valuations are depressed and everyone else is scared.

Discipline beats emotion every time in this game.

Mistake #7: Partnering with the Wrong Platform or Advisor

This might be the most consequential mistake on the list. The right partner can help you avoid all the other mistakes. The wrong one can compound them.

Not all platforms are created equal. Some prioritize transaction volume over investor outcomes. Some lack the expertise to properly evaluate opportunities. Some simply don't understand the unique needs of accredited investors.

The Fix: Choose a partner who:

• Shares your investment philosophy (not just your money)

• Has genuine expertise in private markets

• Provides transparent communication about risks, not just opportunities

• Understands how PE fits into your broader portfolio

• Can blend traditional assets with innovative strategies like digital assets when appropriate

At Mogul Strategies, this is exactly the approach we take. We believe private equity should be one piece of a thoughtfully constructed portfolio: balanced with traditional holdings and newer opportunities to create resilient, long-term wealth.

The Bottom Line

Private equity can be a powerful tool for accredited investors seeking returns beyond what public markets offer. But it's not a set-it-and-forget-it asset class.

The investors who succeed in PE are the ones who go in with clear goals, diversify intelligently, understand their own limits, do their homework, respect the illiquidity, keep emotions in check, and partner with the right people.

Avoid these seven mistakes, and you'll be well on your way to making private equity work for you( not against you.)