The equity market landscape has been transformed by the explosive growth in the private equity market and a tendency for private companies to stay private longer. These trends have contributed to a multi-decade shift in the mix of public and private companies. Twenty years ago, there were 5,000 listed public companies in the US and fewer than 1,000 companies owned by private equity investors. Today, there are more than 10,000 companies owned by private equity investors and only 4,000 public companies. At the same time, the largest public companies in the world have taken advantage of their scale to become even larger and more valuable—most notably the “Magnificent Seven” and other high-performing technology stocks.

In my discussions with large asset owners around the world, they are grappling with questions about how to navigate and take advantage of the evolution of the public and private markets. Participating thoughtfully and successfully in both markets is critical to their ability to meet the needs of their beneficiaries.

For some asset owners, that means tapping to a much greater degree into the innovation and growth potential of private companies that are tackling some of the world’s most pressing challenges and promising opportunities, including:

I see a growing recognition that there are benefits to studying the full public/private market ecosystem.

• Biotech innovation—We are seeing historically high levels of innovation in the biotech space. In 2023, 55 new drugs were approved by the Food and Drug Administration, the second-highest total in the past 30 years. We think this achievement reflects a robust pipeline that will continue to drive biotech advances for the next decade and beyond.

• Climate-focused technology—The climate challenge is clearly daunting. But that also means that the market opportunity for mitigation- and adaptation-related climate innovation and technology is enormous and necessary. We see all of this reflected in the growth of climate-related investments across public and private markets. This includes investments in venture-backed start-ups that could be instrumental in developing many of these solutions.

• The AI revolution—While the Magnificent Seven have dominated the headlines, we think private companies will play a growing role in artificial intelligence (AI) advancements across sectors. Private companies that understand the power of AI and machine learning in the consumer realm could, for example, drive new levels of “hyper-personalization.” We recently wrote about the potential for an AI-driven commerce revolution.

• Financial inclusion—Private FinTech companies are among those using digital and mobile technologies to create better user experiences in banking services, greater access to credit, and enhanced investment capabilities—including in emerging markets where consumers have often lacked access to reasonably priced financial services.

For other asset owners thinking about the public/private convergence, the focus is on more nimbly allocating across public and private markets as opportunity dictates. For example, evaluating investment potential in an area like FinTech might require looking across the ecosystem of public incumbents and private upstarts to fully understand the industry dynamics and identify the likely winners and losers. Or asset owners might pair complementary investments from the two markets, as is the case among many global insurance companies that are allocating to investment-grade private placements alongside public investment-grade bonds in pursuit of capital preservation, income generation, and other goals.

Even for asset owners focused on improving their investment success in the public markets alone, I see a growing recognition that there are benefits to studying the full public/private ecosystem. Again, with a more holistic view of the potential winners and losers from an investment standpoint, there may be opportunities to gain an edge in certain public-market strategies, such as extension strategies (i.e., 140/40 strategies), which have the flexibility to invest both long and short.

These are just a few of the ways the convergence of public and private markets is altering the investment landscape. I think the lines between these markets will continue to blur with many implications for market structure, innovation across sectors, and the important decisions asset owners will make on behalf of their beneficiaries.