From Spotlight to Harmony

It is late evening in a grand concert hall. The audience sits in hushed anticipation as the conductor stands in a commanding spotlight, casting the orchestra into shadow. The violins and cellos begin with a delicate passage, weaving ethereal notes through the hall. But tension builds as the music shifts—a distant rumble from the brass begins to surface. The score demands a powerful transition, and the audience holds its breath, unsure if the orchestra can make the leap from gentleness to grandeur without faltering.

The piece is Symphony No. 5 by Jean Sibelius, known for its sweeping contrasts between powerful, driving sections and fragile, lyrical movements. In moments like these, anxiety can take over. The audience knows that great music thrives on collaboration, yet the critical brass and percussion sections sit quietly, obscured by darkness.

Suddenly, the lights expand, illuminating the brass as they burst into a triumphant fanfare. The orchestra, fully revealed, surges forward in perfect harmony, carrying the music to new heights. The audience is delighted and relieved, the orchestration is fulfilled.

In today’s financial markets, similar anxieties exist. The spotlight shines on a few dominant large-cap stocks like Nvidia, Apple, and Microsoft, creating fears that markets are too concentrated and lack breadth required to support sustainable growth. While it is true that concentrated markets can present short-term financial risk to investors—volatility spikes and asset bubbles—this does not automatically equate to heightened economic risk or long-term financial risk for capital markets entirely.

As we will soon discuss, when one accounts for the shift in corporate preferences for private ownership, markets in aggregate (public and private) are not as concentrated as they feel. Sure, there is concentration in public markets, and that does pose some financial risk, but public markets do not reflect the total economic opportunity set in 2025 like they did in the year 2000 when 75% of companies were publicly traded. Currently, our economy is fueled by a powerful combination of publicly and privately held businesses, reflecting a market structure that is orchestrated, rather than concentrated.

The Anxiety of Market Concentration

Let’s first address common concerns arising from the perception of concentrated markets. When a handful of companies drive most market gains, it’s natural to worry about what this means for the health of the broader market. Here are a few common concerns:

• Feeling 1: Assets Are Overvalued and a Collapse Must Be Imminent

The rapid rise of a few dominant stocks can evoke memories of past market bubbles, like the tech crash of the early 2000s. Many fear that valuations have become too inflated and are primed for a sharp correction.

• Feeling 2: The Burden on Market Leaders Is Unsustainable

With the largest companies shouldering an outsized portion of market indices, investors may worry that if one of these leaders falters, it could drag down the entire market. The idea that these companies cannot sustain their growth indefinitely adds to this anxiety.

• Feeling 3: Innovation and Growth Have Stalled

It can feel as though smaller companies and startups are being overshadowed by large-cap giants, leading to concerns that fewer opportunities for new growth are emerging. This perception can cause investors to question whether economic growth is sustainable or if innovation has plateaued.

All these feelings rightfully create a sense of anxiety among many investors, but what has gone largely unnoticed to many people is the growing role private equity is playing in our broader economic system.  

Why Markets Are Not as Concentrated as They Feel

Much like the unseen musicians in the symphony, private markets have been quietly reshaping the financial and economic landscape over the past 25 years. During this time, a growing number of companies have chosen to go private, while others have chosen to forgo initial public offerings (IPOs) entirely, opting instead to remain private while securing funding from venture capital and private equity. This trend has fostered an environment where innovation thrives both within and beyond the direct visibility of public markets.

Two recent examples include X (formerly Twitter) and OpenAI. As you may recall, Elon Musk acquired Twitter in 2022 for $44 billion, taking it from a publicly traded company to a privately held company. OpenAI, an innovative artificial intelligence company famous for its ChatGPT product, is a privately held company and was most recently valued at $260 billion. Companies such as Cargill, Koch, Publix, Mars, and Fidelity have never gone public and collectively represent about $420 billion in annual revenues as of November 2024.

By count, publicly traded companies accounted for nearly 80% of all publicly traded or PE-backed companies (6,917 public versus 2,042 PE-backed) in the year 2000. By the Global Financial Crisis in 2008, this ratio had shifted to about 50% publicly traded. By 2023, the ratio flipped significantly with publicly traded companies representing only about 30% of the combined public and PE-backed firms.

Now, to be clear, these ratios do not aggregate the total market value of publicly held and privately backed firms, these are merely counts among each category based on registration. With that said, it should be noted that many of today’s most innovative companies are choosing to remain private longer, accessing capital through private equity rather than public offerings. This shift has created a thriving ecosystem of innovation outside the visibility of major stock indices.

Sectors such as fintech, biotech, and artificial intelligence are bustling with growth in private markets, driving technological advancements and new business models. What appears to be market stagnation reflects changing corporate strategies—where innovation is happening among private companies, in addition to those in the public view.

Moreover, the apparent concentration of public market gains is amplified by the mechanics of modern investing. Index funds and ETFs, which have grown tremendously in popularity, allocate more capital to larger companies by design. As investors passively pour money into these funds, they reinforce the dominance of large-cap stocks in a feedback loop. However, this doesn’t mean that smaller or mid-sized companies are stagnant—it simply means their growth is transpiring increasingly in private markets.

What’s unique about today’s market compared to other periods of market concentration (such as IBM, GE, AT&T, etc.) is the simultaneous growth of private markets. When both public and private markets are considered, the breadth and robustness of U.S. financial assets are stronger than they may appear.

Most recently, the “Magnificent 7 Stocks”—the 7 largest stocks in the US—represented about 34% of the US’s total stock market capitalization. And, although the market values of privately held companies are not readily available, 34% of a cohort (public companies) representing 30% of the investable universe in 2025 is very different than a 34% concentration among a cohort representing more than 75% of the investable universe back in 2000.

Why This Matters to Investors

It is understandable that markets feel concentrated—because they are. A small group of large-cap companies, particularly in technology, holds a disproportionate share of public market value in historical terms. This concentration does present a financial risk to investors, as market indices are more sensitive to the performance of a few dominant firms. However, there is not necessarily an equivalent economic risk. Strong economic fundamentals—such as a resilient labor market, regulated inflation, and ongoing innovation—point to a broader foundation of growth that extends beyond public markets.

The rise of private equity and expanding access to capital in private markets support the continued development of emerging industries. These private companies drive technological advancements, create jobs, and enhance productivity, ultimately strengthening the entire financial system. With these forces at play, the economy is positioned to sustain growth, reducing the long-term vulnerability of concentrated public markets.

Closing Thoughts

As fiduciaries, it is our privilege to thoroughly evaluate the entire universe of investment opportunities to build diversified portfolios that seek superior risk-adjusted returns. While the growth of private equity presents intriguing opportunities, investing directly in private markets can be complex due to limited access, higher minimums, and liquidity constraints. Nevertheless, this is a trend we continue to monitor and assess to determine whether it can offer valuable diversification for our clients.

More importantly, we hope this perspective on the trends and dynamics between public and private markets provides reassurance that valuations may not be as extreme as they feel. Strong economic fundamentals and innovation occurring within private markets bolster the broader financial ecosystem. However, if the preference for private capital were to shift back to public markets, it could lead to a rebalancing of market leadership—a natural and healthy process.

As always, we welcome conversations about these trends and how they may affect your financial plan. Our fiduciary advisors are here to discuss any concerns you may have about your investment strategy and help you navigate market cycles with confidence.