Morning Star Pitchbook Index tracks exposure to public and private assets

Morningstar has developed a benchmark to reflect trends with its desire to be exposed to the private market along with publicly traded stocks that have gained traction among investors.

The Morningstar Pitchbook US Modern Market 100 Index, or Modern Market 100, is the first to combine public and private equity exposures in one index. This benchmark is aimed at achieving performances from the largest 100 companies in the United States. It is categorized into 90 public companies and 10 venture companies, the company said.

90/10 Skew is designed to reflect what Morningstar considers the universe of modern assets. This is an increasing opportunity in private markets and businesses where companies such as private markets and Stripe can remain private for longer.

“Companies don’t feel the urge to make it public because they can raise a lot of capital,” says Sanjay Aliya, head of innovation for Morningstar’s Index Products. “So, to ignore them, I think you’re missing out on some of the fastest, most dynamic companies out there.”

Private Equity Universe wars by the value of the publicly available company. The US public equity market is worth around $60 trillion, while the US private equity universe is around $8 trillion, says Arya. However, private companies may reflect where the economy is heading.

“The index is supposed to give you signs of what the economy is, what the market sentiment is, or where people should be looking for opportunities,” Aria said. “And if the majority of it is outside the open market, then public markets alone can’t do that.”

The trend could become even more pronounced. Alternate Asset Managers won a major victory this summer after President Donald Trump signed an executive order clearing the pass for alternative assets added to the 401(k).

However, exposure to private assets has increased over the years. Since 2021, crossover investors such as sovereign wealth funds, private equity buyout companies and hedge funds have been involved in roughly 5,000 private market transactions totaling $450 billion, according to Morningstar. Arya hopes that Modern Market 100 will provide investors with benchmark performance across both asset classes.

However, this is not without challenges. The work began about four years ago, Arya explained that given the challenges of personal assets pricing, the company needs to develop a rule-based process for public-private benchmarks. He said his team relies on secondary trading platforms such as Caplight and Zanbato to aggregate price trading data. The index also applies to liquidity screens, quarterly rebalancing and daily calculations.

The index also tracks companies that are inherently at risk given that it prefers the biggest cap companies that tend to distort towards larger technologies. Included in the top 10 public components of the Modern Market Index Microsoft, nvidia, apple, Amazon and Meta Platform. Top 10 personal ingredients include SpaceX, Openai, Xai and Stripe.

In other words, they may prefer growing companies with more inherent risks. That means that the index is vulnerable to pullbacks, especially at the moment when the tech sector starts moving, especially at the moment when many investors fear that the MegaCup is at the perfect price.

On the other hand, that could mean that the benchmark is poised to capture more outperformance. In the white paper, Morningstar showed that the one-year return of the Modern Market Index was 28.2%. During the same period, the S&P 500 jumped 20%.

According to Arya, the index allows investors to track opportunities that are very different from those captured in major benchmarks. After all, Openai, a company valued at $500 billion, is reportedly larger than Exxon Mobil, Palantir, or Procter & Gamble, but it’s a name that most investors barely mention their portfolio.

He said that benchmarks evolved over time to better reflect the driving forces of economic growth, starting with the rail companies that were defined today as innovation economy at its establishment in the late 1800s.

“We have this big element of the innovation economy and we can’t fully grasp it. This is in a pretty much step-by-step venture space, but I think it just offers a more complete picture,” Aria said.

“It actually helps us understand how these contours change over time,” he continued. “I think it will provide great insights to investors.”

– Gabriel Cortez of CNBC contributed to this report.