Private markets have soared to $10 trillion in AUM. But why have they underperformed public markets?

I have a riddle for you. 

Or a contradiction, perhaps: The U.S. private markets are bigger than ever, and the source of trillions in company value creation. And, at the same time, for the last several years, the private markets as a whole have underperformed the public markets. 

I was thinking about this late last week as I sat at an event run by investment manager Hamilton Lane, running through data on the somewhat bemusing state of the private markets. It’s not that the vibes are wholly bad, per se. But there are a few major striking numbers that bear out this contradiction. 

First, there’s now $10 trillion in assets under management across all private assets, according to Hamilton Lane. Simultaneously, the S&P 500 has outperformed private equity over the most recent ten-year period. (The difference is by about 200 basis points: At the end of September, the S&P was at 15.3% and PE was at 13.2%.)

And this isn’t all about AI, though AI is certainly lopsiding everything. The private markets, amid the AI boom, have looked at best concentrated (recent PitchBook data showed that, in venture dealmaking, if you cut out the five largest deals, Q1’s record-high $267.2 billion in deal value drops by a staggering 73.2%). At worst, the private markets have looked wildly irrational. Then again, you could say the same of the public markets: Allbirds’ wildly baffling announcement that it’s now eschewing its feathery sneakers to be an AI company sent its stock rocketing by 70% in response. (I’ve never much believed in the idea that markets are perfectly efficient. I think markets are narrative-vehicles, but that’s me. So, I mean, I guess.)

We’re also, very possibly, nearing a public-private market collision that could get weird. If SpaceX does, in fact, go public, it’ll be the largest IPO ever. But as Tom........

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