Passive 60/40 – Rise and Limitations
Since the mid-1980s, yields have trended down while equity valuations have trended up—tailwinds that are now near their respective lower and upper bounds. Today we see a mirror image of conditions that drove passive 60/40 success. Periods of high equity valuations and low real bond yield typically result in “lost decades” subsequent sub-par returns.
Compounding this challenge for the passive 60/40, much of the stock market’s growth engine has migrated to private markets, leaving it inaccessible to public investors and thus passive investment vehicles. We believe the likelihood of passive model portfolios delivering the attractive performance of past decades is low.
The Great Growth Migration
There has been endless debate about how to best invest in stocks. Active vs passive, growth vs value, small vs large cap, etc. We’d argue the overlooked question is: has the stock market itself lost relevance as an engine of wealth creation? While stocks undoubtedly deserve a place in most portfolios, structural transformations are undermining the case for exclusive public market investment.
The S&P story is a growth tech story, as it has contributed ~65% of the S&P’s wealth creation since 1990. In the ‘90s, over 25% of VC-funded startups eventually went public. It was every startup’s goal IPO ASAP to access growth capital. Since that time the VC ecosystem has exploded by more than 90x, giving growing enterprises additional options to fund growth without having to endure the burdens inherent to a public listing. Consequently, the IPO rate has plummeted to 2-3% according to a 2020 NBER study. Not only is growth tech tapping public markets at one tenth the rate, the median age at IPO for those that do has increased from 5 years in 1999 to 12 years in 2025 —past their fastest growth years. Source: Jay R. Ritter, University of Florida, “Initial Public Offerings: Updated Statistics” (2024)
The current wave of technological innovation rivals that of the internet boom… but its advancements are being commercialized primarily by private companies. SpaceX, OpenAI, and Anthropic (among others) are arguably the Googles, Amazons, and Microsofts of today. These Mega-Caps would already be public a generation ago. By the time they eventually do go public, they’re likely to be mature and fully-valued, thus leaving little additional juice for public market investors to squeeze.
The number of US public companies has shrunk 58% from 8,800 in 1998 to 3,657 at the end of 2025. Currently, 87% of all current US companies with revenues exceeding $100 million are private. In 2022-2024, take-private acquisitions exceeded new IPO fundraising by over 3.5×. As Private Capital markets continue to expand, the burdens of being listed have only grown:
- Regulatory and compliance burdens drain resources and management attention.
- Companies prize the ability to shield proprietary information from disclosure requirements inherent to being public.
- Private ownership enables long-term strategic focus without quarterly earnings and guidance pressure
Management can control the cap table and avoid distracting activist campaigns
Public Market Concentration
The “Magnificent 7” technology stocks now represent ~35% of the S&P 500. In their prime, these companies delivered revenue annual growth exceeding 35-100%+ compared to ~7-18% today (other than Nvidia, of course). Passive investment dollars are chasing public proxies for AI exposure, stretching valuations while settling for companies with merely tangential exposure to the AI revolution. This mismatch has created bubble-like valuations for yesterday’s leaders while pure-plays building tomorrow’s breakthroughs remain inaccessible to everyday investors.
Private Market Advantages and the Endowment Model
Institutional investors have increasingly turned to private markets as a core driver of portfolio performance, with most endowments, foundations, and large family offices allocating ~30-70% of their assets to private markets. Nothing exemplifies this evolution more clearly than the Endowment Model, brought to life by Yale Endowment’s David Swensen and detailed in his seminal work Pioneering Portfolio Management. At the heart of Yale’s success was a heavy allocation to private market investments. According to Ted Seides’ book Capital Allocators, Yale’s portfolio’s composition consisted of:
- ~10% US Stocks, Bonds, & Cash
- ~14% International Equities
- ~76% Private Market Assets
Over Swensen’s 35-year tenure as CIO, Yale’s endowment posted 13.1% annualized returns, exceeding peer institutions by 3.4% and the 60/40 by 4.3%. His success transformed institutional investing with his model becoming the institutional blueprint, catalyzing explosive growth in private markets as allocators sought to capture its advantages, which can include:
- Enhanced Diversification
- More persistent performance dispersion for managers in the private markets than in the public markets, allowing discerning allocators to outperform
- Illiquidity premium adding 2-6% higher annualized returns with similar risk compared to public market equivalents.
- Reduced sequence-of-return risk
- More stable return profiles
- Asymmetric risk/return
- Principal Protection
- Structural behavioral advantages, as lower mark-to-market volatility reduces likelihood of impulsive decision-making at the wrong time
- Friction between capital and consumption, reinforcing saving/investing discipline (for individual investors)
Implementation Considerations/Challenges
Private market inclusion introduces complexities, such as:
- Selecting appropriate asset classes, strategies, and geographies
- Identifying and evaluating top-tier managers, who are usually outside mainstream channels
- Due diligence and ongoing monitoring of managers
- Liquidity provisioning for unpredictable capital calls while avoiding cash drag
- Complex tax administration and dozens of K-1s
There are no passive options with respect to private market investing. Effective implementation requires a professional and discerning Capital Allocator with institutional infrastructure. These resources are cost-prohibitive for all but the wealthiest of families.
Alpenglow Capital provides select HNW/UHNW investors and institutions simplified access to an institutional-quality family office portfolio across public and private markets, anchored by optimal alignment of interests. Contact us to learn more.
Disclosure: The author and/or affiliated entities may hold investment positions in one or more of the companies referenced in this article. This material is for informational and educational purposes only and does not constitute investment advice, an offer to sell, or a solicitation of an offer to buy any security or investment product. Forward-looking statements and opinions reflect the author’s views as of the date of publication and are subject to change without notice. Past trends and data cited herein are not indicative of future results.