More investors want public and private assets in their portfolio. Now there's a benchmark to track this combo

Morningstar has launched the PitchBook US Modern Market 100 Index, the first benchmark to combine public (90%) and private (10%) equity exposure, designed to reflect the evolving investment landscape where companies remain private longer. This index, which includes major tech firms and prominent venture-backed companies like OpenAI and SpaceX, aims to capture the innovation economy and address growing investor demand for private market access. While it demonstrated a 28.2% 1-year return, outperforming the S&P 500, its concentration in high-growth, high-risk tech companies implies increased volatility and potential vulnerability to sector pullbacks, yet offers a broader view of market opportunities.

Analysis

Morningstar has launched the PitchBook US Modern Market 100 Index, the first benchmark to combine public and private equity, structured with a 90/10 split respectively. This initiative directly addresses the structural market shift where high-growth firms like OpenAI and Stripe remain private for longer, fueled by ample venture capital, creating a segment of the 'innovation economy' inaccessible through traditional public indices. The index's methodology attempts to solve the persistent challenge of valuing illiquid private assets by aggregating pricing data from secondary trading platforms. Its composition is heavily weighted towards large-cap technology and growth companies, with top public constituents including Microsoft and Nvidia, and private holdings like SpaceX and OpenAI. This concentration has driven significant outperformance, with the index posting a 28.2% one-year return compared to the S&P 500's 20%. However, this tech-centric profile also introduces substantial risk, making the index vulnerable to a sector-specific downturn, particularly amid concerns that megacap technology stocks are 'priced for perfection'. The index's launch is timely, capitalizing on growing investor appetite and regulatory tailwinds, such as the executive order facilitating alternative asset inclusion in 401(k)s.

Key Decisions for Investors

• Consider utilizing the Modern Market 100 as a performance benchmark for growth and technology-focused mandates, as its structure offers exposure to late-stage private innovators not captured by public-only indices.
• Investors should assess the index's high concentration in the technology sector, which, while driving its 28.2% one-year return, also implies significant correlation with existing tech holdings and heightened vulnerability to a sector-wide correction.
• Before adopting strategies based on this index, carefully scrutinize the valuation methodology for its ten private components, as reliance on secondary market data for illiquid assets introduces potential pricing inaccuracies and tracking errors.
• Recognize the index's creation as a key indicator of the increasing integration of private market assets into mainstream portfolio construction, prompting a review of whether current asset allocations adequately capture value from high-growth companies delaying IPOs.