Rapid private market growth and what it means for investors

Written by Joe Lonsdale | March 21, 2022

Looking ahead, investors must access private assets to get exposure to the US economy and disruptive tech.

Key Takeaways

Private markets are growing very rapidly, now at the expense of public markets. This has partly been the result of their own outperformance.
But companies are also staying private for longer or choosing to go private because it is beneficial from a regulatory perspective. This feeds a lot of other private markets growth, like private credit.
The growth of private markets doesn't seem to be at risk of stopping anytime soon given there have been no changes to the regulatory environment, increasing capital in the space, and top talent increasingly moving to private companies.
As private markets grow, for investors to maintain a passive portfolio broadly representing the economy, they'll need to include private assets.
In particular, to get access to the highest growth, and most innovative/disruptive companies, investors need to turn to private markets - these opportunities are no longer available on public markets.

Transcript

I'm Joe Lonsdale I'm the founder of Palantir, Addepar, Resilience Bio, and other technology companies. I also lead 8VC, which is a leading venture capital firm.

So private markets are growing really quickly. This is partially a function of their own success. When something compounds at a high rate, it gets really big after ten or 20 years. It's a kind of cottage industry that's all of a sudden growing up very quickly because it's outperforming so many other parts of global finance.

A lot of big companies are choosing to remain private, so that keeps the market there. And then, when these companies stay private longer, it has knock-on effects. There's private credit markets and they grow and there's private secondary markets that grow. And you know, a lot of people, due to regulatory concerns or others, are choosing to take big public companies private. That's happened a lot in the private equity market real estate, as well as a lot of things going on privately.

It's a very fast-growing space, and this trend doesn't seem in any danger of stopping soon. If you actually look at where the top talent going out of our top universities, out of our top companies, private markets are the only way to access a lot of these companies at a critical high growth point in their life cycle. There have been times in the past where the public markets were deep enough and there was enough going on there. You could basically just be in public and be OK. It's just very clear, at this point, that so much talent has gone to private markets.

Passive investors, even if they just want to hold a representative piece of the entire economy and bet on the economy's growth over time, which has not been a bad idea. You can't even do that anymore without using private markets, without using illiquid instruments. So many things are happening in the innovation world that are changing the prices to big industries that occur in these private markets that if you want to have access to the top returns, if you want to be doing what the smartest families are, you have to access them.

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