Overview of The Buried $150 Billion Bet Inside the Top 20 U.S. Stocks
This episode of WSJ’s Take on the Week explores how everyday investors may already have indirect exposure to private companies—especially high-profile AI and startup names like Anthropic and SpaceX—through ownership of the largest U.S. public companies. The discussion weighs whether private markets really offer superior returns or diversification, or whether investors may be better served by cheaper, broader public-market diversification.
The Core Idea: Private Market Exposure Is Already Inside Public Stocks
Caitlin Hendricks of Dimensional Fund Advisors explains that the 20 largest U.S. companies make up about 40% of U.S. market cap and collectively hold substantial stakes in private companies.
How public investors get indirect access
- Direct investments: Large public companies like Alphabet, Amazon, Microsoft, and NVIDIA own stakes in private firms such as Anthropic.
- Corporate venture capital arms: Public companies often run their own venture-style investment arms.
- Examples include Google/Alphabet, Microsoft, NVIDIA, and even Eli Lilly.
- Subsidiaries: Parent companies may own private businesses through subsidiaries.
- Example: Alphabet’s ownership of Flipkart via a subsidiary.
Estimated scale
- The guests estimate roughly $100 billion to $150 billion in private-company exposure embedded in the 20 biggest U.S. stocks.
- For a broad U.S. equity investor, that could amount to about 1% of portfolio exposure in private assets, though the figure may be understated because some holdings are hard to measure.
Why This Matters for Investors
The episode argues that many investors pay a premium for private-market access without realizing they already get some of that exposure through broad public-market ownership.
Key contrast
- Private-market funds often come with:
- high fees
- illiquidity
- opaque valuations
- tax and operational complexity
- Broad public-market index funds offer:
- low fees
- easier access
- built-in diversification
- some indirect exposure to private-market winners
The guests point to simple index funds like SPY or VOO as inexpensive ways to own the biggest companies—and, indirectly, some of the most valuable private investments they make.
What the Show Says About Public Market Earnings
A major theme is that paper gains in private investments can meaningfully affect reported earnings for large public companies.
Spencer Jacob’s takeaway
- When public companies hold stakes in hot private firms, rising valuations can show up in quarterly earnings.
- In one recent quarter, about 12% of total S&P 500 net profit was attributed to revaluation gains from these private holdings.
- These are not cash earnings—they’re mark-to-market accounting gains.
- The guests warn that investors may be over-extrapolating these gains as if they are permanent.
Why that can distort perception
- Investors may look at companies like NVIDIA or Amazon and assume their strong paper gains imply the private holdings are also generating huge real profits.
- But many of these gains come from funding rounds and valuation step-ups, not actual cash flow.
Do Private Markets Actually Outperform?
Caitlin Hendricks discusses a large study of private equity and private credit returns, covering thousands of funds over several years.
Findings on performance
- Private equity: Some outperformance versus the S&P 500, but the comparison changes when benchmarked against small-cap stocks, which are often more comparable to the kinds of companies private equity owns.
- Venture capital: The apparent edge narrows or disappears when compared with more appropriate small-growth benchmarks.
- Private credit: Shows some outperformance versus credit benchmarks, but looks less compelling when compared with high-yield credit, which is often more similar in risk profile.
Main conclusion
The research suggests there is not a huge, obvious performance premium in private markets once you use more realistic comparisons.
Diversification: The Strongest Argument for Private Assets
The guests agree that diversification is one of the main reasons investors seek private assets.
Why diversification matters
- Private assets can add exposure to different return drivers than public markets.
- The research found some unexplained variation in private-market returns, implying not all performance is captured by standard public-market factors.
But there’s a catch
- Investors generally cannot buy “the private market” the way they can buy the stock market.
- They must pick individual funds and managers, which introduces:
- manager risk
- sector concentration
- illiquidity
- access constraints
- The dispersion in outcomes is wide:
- some funds are around 0.8x to 1.13x public-market equivalent
- manager skill does not appear highly persistent
Why Benchmarking Private Funds Is Tricky
The episode spends time explaining why private-fund performance can be misleading if investors rely too heavily on reported IRRs.
IRR vs. TVPI
- IRR (internal rate of return): Can be distorted by the timing of cash flows and is hard to compare with public-market returns.
- TVPI (total value to paid-in capital): More intuitive because it shows how much value was created relative to what was invested, but it ignores timing.
Why this matters
- A fund’s reported 15% IRR may sound better than an 11% S&P 500 return, but the comparison may not be apples-to-apples.
- The guests prefer frameworks that are easier to interpret and less prone to presentation bias.
Bottom Line
The episode’s overall message is cautious and practical:
- You may already have some private-market exposure through broad ownership of large public companies.
- The case for private investing is not primarily superior performance.
- The strongest argument for private assets is diversification, but that benefit is harder to capture cleanly and often comes with high fees and illiquidity.
- For most investors, the simplest and cheapest path to diversification is still broad public-market index investing, including international exposure where appropriate.
Notable Takeaways
- Public companies increasingly function like stealth venture capital allocators.
- Private valuation gains can materially affect public-company earnings, even without cash changing hands.
- Private-market access is often sold as exclusive, but the episode argues that broad public-market investors already own part of that upside.
- If your goal is diversification, cheap public-market funds are generally the more efficient tool.
Practical Investor Implications
Consider:
- Whether you already have indirect private-market exposure through your largest holdings
- Whether a private fund’s fees and liquidity terms are worth the added complexity
- Whether broad diversification across U.S. and international public markets would achieve your goals more efficiently
Be cautious about:
- Chasing hot private names simply because they are fashionable
- Treating reported private-fund IRRs as directly comparable to public-market returns
- Assuming paper valuation gains equal durable profitability