The private equity market has experienced explosive growth in recent decades and appears poised for more in coming years. The market has also been reshaped by changes in how private companies fund their growth, which has altered the path to the public market. This evolution in market structure is, in my view, creating a more integrated “ecosystem” of public and private companies.

The implications of these changes are enormous, given the role that private equity has come to play in portfolios of institutional investors (e.g., a 20% allocation for the average large endowment¹) as they face high return hurdles and seek to outperform public equity and pursue an illiquidity premium. With nearly half of investors planning to increase their private equity allocations,² I believe the shifting market landscape requires a more holistic view of the equity opportunity set and a thoughtful approach to portfolio implementation.

In this paper, I’ll explain what’s driving change in the private markets and propose a set of portfolio-construction priorities, including ideas related to the late-stage growth category of the private market, thematic investing, and manager selection.

Trends transforming the private equity market

There are a number of fascinating developments taking place in equity markets and company life cycles, but let me focus on three in particular:

1. There are fewer public companies and more private companies

Since the mid-1990s, the number of exchange-listed US companies has been nearly halved, from just over 8,000 to roughly 4,200. We can see the impact across the…

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¹NACUBO, 2020; based on endowments greater than US$2 billion | ²Casey Quirk CIO Sentiment Survey, May 2021