Public vs. Private Markets for Long-Term Investing

Marc Rowan: We're going through immense change in the way financial markets work. And nothing works the way we thought it did. In 2008, we fundamentally changed financial markets. And we're just discovering what all those changes mean.

But to get directly to your question, think of the largest pool of money anywhere in the world right now. There's some $12 trillion sitting in 401(k) plans. What are these 401(k) plans invested in? They are daily liquid for 50 years.

Why? There's no good reason. We have, going back in history, we have a perception of public is safe and private is risky. And 30-40 years ago, that was the right perception. Because what was private? Venture capital, hedge funds, and private equity. All of those things involve risk. And public was safe, we were talking about diversified equities, diversified stocks, diversified bonds.

Is any of that true today? It's not. Right now, private markets go from AA to levered equity. Private is both risky and safe. Public is both risky and safe too. We saw the destruction of lots of Silicon Valley companies in the last couple of years. But look at where we are in the stock market today. 10 companies are 35% of our index.

Those 10 companies are larger than the market caps of the entire market of U.K., Japan, Canada, Germany, and elsewhere. These are immense companies. They trade at a 60 plus PE. How many people come in every day to buy 60 PE stocks? Not that many. Yet, half of our retirement system assets in the country are levered to 10 stocks. Do we think that's great? I don't think that's great. We're not talking about resilience.

That doesn't mean public is risky. Public is safe and risky. Private is safe and risky. We're just talking about different degrees of liquidity.