2025 Public-Private Convergence Year in Review: The Line Between Markets Dissolves

The Big Picture

The distinction between public and private markets—liquid vs. illiquid, transparent vs. opaque, accessible vs. exclusive—collapsed in 2025. Apollo's Scott Kleinman called it "irreversible." Goldman Sachs' Marc Nachmann described a "continuum" replacing the old binary. J.P. Morgan declared private markets "essential infrastructure." Infrastructure to trade private assets like public securities is now being built. Retail investors are gaining access to asset classes once reserved for institutions. The largest asset managers are positioning as if the old categories no longer exist.

Why It Matters

Public equity markets have lost 50% of their listed companies over two decades. The Magnificent 7 now comprise 35% of the S&P 500. Investors clinging to the old framework are increasingly concentrated in a shrinking universe while 44,000+ private companies with $100M+ in revenue operate outside their reach. The convergence is the biggest untested bet in institutional investing.

The Year's Defining Themes

1. The Convergence Thesis Crystallized

What happened: The industry's most influential voices declared the shift structural, not cyclical.

Apollo's Scott Kleinman: Public markets have become dangerously concentrated while losing practical liquidity. Banks reduced market-making post-2008, creating a 30x reduction in relative debt market liquidity while public debt markets tripled. Over 50% of U.S. equity flows are now passive, mechanically driving money into the same stocks without price discovery.

Goldman Sachs' Marc Nachmann (from Australia): The distinction between public and private is fading. Firms positioned across both will capture the opportunity.

J.P. Morgan's 2026 Alternatives Outlook: Private markets are "essential infrastructure for modern investing." The AI super-cycle is shifting value creation from public exchanges to private capital.

"We don't have an S&P 500 anymore, we have an S&P 10 and an S&P 490." — Scott Kleinman, Apollo

"The boundaries between the public and private markets will continue to become softer and we'll see more of a continuum between the two markets." — Marc Nachmann, Goldman Sachs

2. The Liquidity Myth Shattered

What happened: Public market liquidity proved fragile when tested.

The evidence:

During the UK gilt crisis, pension funds had to sell AAA-rated securities at 85 cents on the dollar when everyone needed liquidity simultaneously. Public market liquidity exists until you need it most.

Meanwhile, private markets demonstrated stability. As Blue Owl's Marc Lipschultz noted, private borrowers maintained capital access during volatility while public market issuers were locked out entirely.

The BIS documented how private credit's funding cost disadvantage versus banks has narrowed by approximately 200 basis points since 2010—the structural arbitrage that once gave banks an insurmountable edge is eroding.

"If you are in the public market, you had no access to incremental capital. If you were in the private market and you still are fundamentally sound business, you had access from us." — Marc Lipschultz, Blue Owl Capital

3. New Trading Infrastructure Emerged

What happened: The plumbing for trading private assets like public securities started getting built.

The major moves:

• Apollo marketplace: First-ever private credit trading platform; $2 billion traded with 60 active clients; TPG Angelo Gordon signed as early partner

• Secondary market record: $152 billion in volume; GP-led transactions surged 50% to $72 billion

• Lazard projection: Secondary volumes to exceed $200 billion in 2025

The secondary market evolved from distressed-seller solution to strategic portfolio management tool. Retail capital through '40 Act funds created new demand sources and improved pricing.

"We're focused on building a true marketplace—open architecture, collaborative, and built for scale." — Eric Needleman, Apollo

"There's a clear use case and demand for secondary markets to develop in these instruments." — Brendan McCaffrey, TPG Angelo Gordon

4. The Retail Floodgates Opened

What happened: The race to bring private markets to individual investors accelerated.

The moves:

• Lincoln Financial: First insurer to offer private-market funds to individuals; partnered with Bain Capital and Partners Group; accepts investors regardless of wealth level with quarterly redemptions

• State Street survey: 55% of institutions expect half of private markets fundraising to come through semi-liquid retail-style vehicles within two years

• SEC Chairman Paul Atkins: Signaled openness to reforming accredited investor rules

The catch: Hamilton Lane assigns a 75% probability that a market decline causes most evergreen funds to gate redemptions—trapping retail investors precisely when they want out.

"It would take competitors 10-15 years to build a comparable network." — Jayson Bronchetti, Lincoln Financial

5. The Fee Wall Emerged

What happened: Morningstar's CEO warned cost structures threaten the democratization thesis.

The math: Fees in semi-liquid private market vehicles run 3x higher than typical mutual funds (3.16% vs. 0.37% for passive equity). Without compression, mainstream ambitions stall.

The counter: Just as index funds drove down costs in public markets, Vanguard and Capital Group entering private markets will force fee reductions through competition.

"Fees in semi-liquid private market vehicles are currently three times higher than typical mutual funds—creating a steep hurdle that threatens widespread adoption." — Kunal Kapoor, Morningstar

6. Public Companies Chose Private Financing

What happened: Large public companies with existing capital markets access increasingly selected private financing.

The drivers: Public companies valued customization and execution certainty over public debt markets. Private lenders moved faster, structured creatively, and provided certainty of close.

The example: Intel now faces more CapEx requirements over the next five years than its entire market capitalization—forcing consideration of private funding for the first time.

BlackRock's framing: Private credit is "not an alternative asset class but a necessary complement to public securities for accessing the substantial portion of economic activity occurring in private companies."

7. The Valuation Gap Narrowed—And M&A Followed

What happened: The pricing disconnect between public and private markets closed, unlocking deal activity.

The data (Ares Perspectives):

The public-private valuation gap in buyouts fell from 30% in Q2 2023 to just 14% by Q3 2024. Private company transaction volumes grew from $39 billion to $60 billion over the same period.

The correlation is consistent: when valuations align, buyers and sellers agree on pricing, and transactions close.

8. Credit Markets Blurred First

What happened: The convergence between syndicated loans and direct lending accelerated, giving borrowers unprecedented optionality.

The key insight from TCW's Katie Koch, Diameter's Jonathan Lewinsohn, and Blue Owl's Marc Lipschultz:

Healthy convergence means cross-pollination—public markets provide valuable price discovery and signals, while private markets provide steady capital access during volatility. The risk is problematic blending that eliminates the distinct advantages of each.

Private credit stress won't show up through traditional default metrics. It will manifest through amendments, extensions, and covenant changes—metrics the public markets can't easily observe.

"We believe in the business cycle. That doesn't sound like a really brave statement, but we haven't had one for 17 years." — Katie Koch, TCW

"More people have seen Bigfoot in the last decade and a half than a business cycle, most likely." — Jonathan Lewinsohn, Diameter Capital

9. Regulators Started Paying Attention

What happened: Global regulators began investigating the structural shift—with mixed implications.

The moves:

ASIC (Australia) launched an investigation into whether private markets are reducing quality opportunities in public markets, seeking input on regulatory harmonization.

The Observer Research Foundation flagged that the combination of illiquid assets with open-ended structures creates unique vulnerabilities—especially as retail investors enter.

The Federal Reserve documented $95 billion in bank lending to private credit funds, growing 145% over five years—raising systemic interconnection concerns.

The counter-argument from Apollo's Kleinman:

"The biggest single systemic risk we have right now is the fact that 40% of the S&P is held in 10 stocks." — Scott Kleinman, Apollo

Regulators are scrutinizing private credit while ignoring the concentration risk in public markets that the entire U.S. retirement system depends on.

10. The Stress Test Looms

What happened: The industry acknowledged it hasn't been tested.

The numbers:

• 95% of private credit participants haven't experienced a recession or persistent non-zero rates

• Private credit's 11.6% average returns (2008-2023) occurred during historically benign conditions

• Payment-in-kind interest within BDC income has doubled since 2019

• An economic downturn will reveal quality disparities among managers—particularly those who sacrificed covenants for growth

"We believe in the business cycle. That doesn't sound like a really brave statement, but we haven't had one for 17 years." — Katie Koch, TCW

"More people have seen Bigfoot in the last decade and a half than a business cycle, most likely." — Jonathan Lewinsohn, Diameter Capital

The Bulls vs. Bears

Bulls Say:

• Public markets have become dangerously concentrated—40% of S&P held in 10 stocks

• Private markets are now "essential infrastructure" for modern investing

• The boundary will continue to soften into a "continuum"

• Private credit is a necessary complement, not an alternative

• Retail access represents massive growth runway—$150 trillion in private wealth allocated just 3-6% to alternatives vs. 15-30% institutional

• 44,000+ private companies with $100M+ revenue now exceed public market equivalents

Bears Say:

• 3x fee differential vs. public market products threatens mainstream adoption

• Retail investors lack sophistication for illiquid, complex products

• 75% probability of gate restrictions during market stress (Hamilton Lane)

• The industry hasn't been stress-tested—95% of participants haven't seen a recession

• Open-ended structures with illiquid assets create redemption risk

Systemic Risk Watchers Say:

• $95 billion in bank lending to private credit creates interconnection (Federal Reserve)

• Cross-border contagion risks growing as North American managers dominate globally

• Valuation opacity makes monitoring difficult

• Retailization introduces new liquidity vulnerabilities

What the Giants Said

On the structural shift:

• "We don't have an S&P 500 anymore, we have an S&P 10 and an S&P 490." — Scott Kleinman, Apollo

• "The boundaries between the public and private markets will continue to become softer." — Marc Nachmann, Goldman Sachs

• On public market fragility:

• "The biggest single systemic risk we have right now is the fact that 40% of the S&P is held in 10 stocks." — Scott Kleinman, Apollo

• "If you are in the public market, you had no access to incremental capital." — Marc Lipschultz, Blue Owl

On the untested cycle:

• "We believe in the business cycle... but we haven't had one for 17 years." — Katie Koch, TCW

• "More people have seen Bigfoot in the last decade and a half than a business cycle." — Jonathan Lewinsohn, Diameter

• On infrastructure:

• "We're focused on building a true marketplace—open architecture, collaborative, and built for scale." — Eric Needleman, Apollo

• On retail access:

• "It would take competitors 10-15 years to build a comparable network." — Jayson Bronchetti, Lincoln Financial

Looking Ahead to 2026

The Consensus View:

• Convergence deepens as infrastructure matures and retail channels expand

• Secondary market volumes exceed $200 billion

• "Once-in-a-generation capital expenditure cycle" creates sustained private capital demand (J.P. Morgan)

• Fee compression begins as major asset managers compete for retail flows

• More public companies choose private financing for major investments

The Open Questions:

• Can new trading infrastructure handle stress conditions?

• Will retail products deliver institutional-quality returns after fees?

• When the business cycle returns, how will convergence perform?

• Does public market concentration represent a greater systemic risk than private credit opacity?

• What percentage of the 55% retail fundraising projection actually materializes?

The Bottom Line

2025 was the year public-private convergence moved from thesis to reality.

The old framework—public means liquid and safe, private means illiquid and risky—no longer holds. Public markets have concentrated into a handful of mega-cap stocks while losing practical liquidity. Private markets have grown to $20+ trillion while developing trading infrastructure and retail access channels.

The industry split into camps: convergence bulls building for a world where the boundaries dissolve, democratization skeptics warning about fee differentials and complexity, and systemic risk watchers monitoring the interconnections.

The capital is flowing. BlackRock's acquisitions of HPS, GIP, and Preqin signal institutional conviction that private markets are permanent infrastructure. Apollo's trading marketplace signals that private assets will increasingly trade like public ones. Lincoln Financial's retail funds signal that access restrictions are falling.

2026 will test whether these structures can withstand the stress that 95% of participants have never experienced.