In recent years, we’ve seen a shift in the investment landscape. Traditional distinctions between public and private markets are beginning to blur, challenging long-standing assumptions about risk, accessibility, and investment strategies. New data from Apollo Global Management sheds light on trends reshaping the investment world. 

Private Market Dominance: The New Normal

Did you know that the majority of large companies are now private? Among companies with revenue exceeding $100 million, a staggering 86% in the United States, remain privately held.

Meanwhile, the number of public companies has been declining. In the U.S., public listings have dropped from about 8,000 in 1990 to around 4,000 today. Private markets, in contrast, are expanding rapidly. Over the last two decades, private credit has grown from 1.7% to 6% of U.S. corporate debt, while private equity has increased its share of the total U.S. equity market from 3.8% to 10.1%.

Rethinking Risk: Public Doesn’t Always Mean Safe

A persistent myth in finance is that public markets are inherently safer than private ones. However, recent data tells a different story. Consider the Russell 2000 index, a major benchmark for small-cap stocks: currently, 42% of its companies report negative earnings. These firms are especially vulnerable in a “higher for longer” interest rate environment, due to their exposure to floating-rate debt.

The Passive Revolution and Rising Market Concentration

One of the most transformative changes in public markets has been the rapid rise of passive investing. Approximately 90% of active equity managers and 81% of fixed income managers underperform their indexes over a 10-year period, leading investors to favor passive strategies. However, this shift isn’t without consequences. Market concentration has reached unprecedented levels, with just a handful of “Magnificent 7” tech stocks heavily influencing market returns.

Key Takeaways for Investors

These developments offer crucial insights for investors navigating the evolving financial landscape:

1. The public/private distinction is becoming less relevant. Each sector has unique risk profiles and opportunities, requiring a more flexible approach to asset allocation.
2. Market concentration in public indices is a growing risk. Passive investors may face concentrated exposures that could increase portfolio volatility.
3. Private markets are no longer a niche. They represent a significant portion of investment opportunities, offering diversification and potentially enhanced returns.
4. Risk assessment should extend beyond market type. Investors need to evaluate factors like earnings, debt structure, and sector dynamics to make informed decisions.

Looking Ahead

As these trends continue, traditional portfolio strategies may need adjustment. A diversified, balanced approach that integrates both public and private market investments could be essential to managing risk and capturing opportunity. In this increasingly interconnected landscape, successful investing may depend less on whether assets are public or private and more on understanding fundamental value and risks across the entire market spectrum.

The lines between public and private markets are indeed blurring, and those who adapt to this changing environment will be best positioned to thrive.