Private Market Indexes: Pros & Cons

Private Market Indexes: Pros & Cons

Indexes, which contain companies within one purchasable stock, have long been a staple of public market investing, offering investors a simple way to gain exposure to a broad basket of assets. The S&P 500, for example, tracks the performance of 500 of the largest U.S. companies, rebalancing frequently to maintain alignment with market realities and you can purchase a position in this through a a position in SPY. These indexes provide diversification, ease of access, and low management costs for investors.

However, private markets don’t operate with the same fluidity. Shares in private companies don’t trade freely, and valuations can remain static for long periods. This makes it harder to assemble and maintain an accurate index. The relative illiquidity and opacity of private markets create an opportunity for indexes tailored to these assets. They promise investors exposure to private market returns without the need to research and invest in individual companies.

That convenience, however, comes at a cost. Indexes often charge management fees, which can eat into returns. For example, an index fund might charge a percentage of assets under management annually, reducing your net gains. Additionally, unlike public market indexes, private market indexes may not rebalance frequently, leaving investors exposed to outdated valuations or concentrated risks.

As a private market investor, it’s essential to weigh the benefits of convenience against the costs and limitations of these index products.

Index Review

An index in the public markets is a well-oiled machine. Thanks to the constant trading activity of stocks, its components can be rebalanced regularly to ensure the index accurately reflects the current value of its holdings.

Private market indexes, on the other hand, face unique challenges. With far less liquidity and trading activity, valuations don’t adjust as frequently, and rebalancing is often more of a manual process—or doesn’t happen at all. For investors, this introduces a critical layer of risk: without regular updates to align with market realities, you could end up overpaying for holdings that have lost value or are no longer high-potential investments.

Another factor to consider is the transparency of the holdings within a private market index. Unlike public indexes, where the components are listed and their weights disclosed, private indexes can be opaque, leaving investors unsure of what exactly they’re paying for.

Finally, fees are an expected hurdle in private market indexes, but they serve a purpose. Unlike public index funds, which often charge minimal fees, private market indexes require higher costs to account for the complexities of sourcing, managing, and providing access to hard-to-reach opportunities. This is a common theme across private equity as well: you’re not just paying for portfolio management, but for access to a space that isn’t open to the average investor.

When evaluating a private market index, it’s essential to ask: • How often does the fund rebalance its holdings? • Are the valuations updated regularly to reflect market conditions? • Do the fees justify the value provided in terms of access and potential returns?

Understanding the mechanics behind a private market index can make the difference between benefiting from diversified exposure and falling into a costly, underperforming trap.

Comparing Private Market Indexes: Stableton, Fundrise, and Destiny (DXYZ)

While all these private market indexes provide access to high-growth private companies, they differ in portfolio size, notable holdings, investment minimums, and accessibility. These three are among the leading options in the market, but they’re not the only ones available. As the private markets continue to grow, new solutions regularly emerge, giving investors more ways to diversify their portfolios.

1. Stableton Unicorn Index AMC

• Number of Companies: Approximately 20 holdings.

• Notable Companies: Klarna, SpaceX, Stripe, and ByteDance.

• Investment Minimum: Typically starts at CHF 10,000 (approximately $11,000 USD).

• Accreditation Requirement: Accredited investors only. This means investors must meet certain income or net worth thresholds to qualify.

• Full Holdings: Stableton Top 20 Portfolio Holdings.

• Key Features: Focused on late-stage unicorns, Stableton provides concentrated exposure to some of the largest private tech companies globally.

• Risk: Fees can add up quickly and there is a bit of lack of transparency on the ongoing rebalancing of this fund. More on this in the deep dive.

2. Fundrise Venture Fund

• Number of Companies: Around 25 holdings.

• Notable Companies: Anduril, OpenAI, Plaid, and Robinhood.

• Investment Minimum: Starts at $10 USD, making it highly accessible to individual investors.

• Accreditation Requirement: None required. Anyone can invest as long as they meet the minimum.

• Full Holdings: Fundrise Venture Fund Portfolio.

• Key Features: Aimed at democratizing private market investing, Fundrise offers diversified exposure with a lower barrier to entry for individual investors.

• Risk: Liquidity in private markets is always challenging, but this fund can be particularly hard to get your cash out. More on this in the deep dive.

3. Destiny Tech100 (DXYZ)

• Number of Companies: 100 holdings.

• Notable Companies: Canva, Databricks, Figma, and Snowflake.

• Investment Minimum: One share, currently priced at $58 USD.

• Accreditation Requirement: None required. As a publicly traded security, Destiny (DXYZ) is accessible to all investors.

• Full Holdings: Destiny Tech100 Portfolio.

• Key Features: Unlike the other options, Destiny (DXYZ) is a publicly traded security. This means investors can buy and sell shares on the open market, offering greater liquidity and accessibility compared to private market indexes.

• Risk: There is a large 10x premium your paying to use this security for private market access. More on this in the deep dive.

Deep Dive: Stableton Unicorn Index AMC

The Stableton Unicorn Index AMC is designed to capitalize on the exceptional growth potential of private market unicorns—companies valued at over $1 billion. A backtested performance comparison underscores the dramatic difference in growth between these private companies and public market equities. From December 2014 to late 2024, the top 20 unicorns have shown cumulative growth exceeding 600%, far outpacing the performance of public equities, which have remained below 200% growth in the same period.

This stark divergence highlights the allure of private markets: they offer exposure to companies during their high-growth phase, long before they reach public markets. However, accessing this growth comes with both benefits and trade-offs.

Fees and Accessibility

Investors in Stableton’s Unicorn Index AMC face a fee structure typical of private equity products. According to Stableton, these include:

• Management Fees: 1.25% annually.

• Performance Fees: 10% on returns exceeding a pre-defined hurdle rate.

These fees are significantly higher than the expense ratios of public index funds, which often range from 0.03% to 0.40%. While the fees reflect the complexity and exclusivity of accessing private market unicorns, they can substantially reduce net returns over time, especially during years of strong performance.

Participation is also restricted to accredited investors, limiting access to individuals meeting specific financial thresholds.

Growth Potential vs. Risk

The appeal of the Unicorn Index lies in its ability to deliver outsized returns compared to traditional public market investments. The portfolio’s focus on mature, high-growth companies like Klarna, SpaceX, and Stripe reduces some of the risks associated with early-stage investing.

However, this high-growth potential comes with structural challenges:

• Rebalancing Uncertainty: Unlike public indexes, Stableton’s rebalancing policies are less transparent. This could expose investors to outdated valuations or over-concentration in certain companies.

• Liquidity Constraints: As with most private equity products, investors should be prepared for limited liquidity and longer holding periods.

Final Thoughts

The Stableton Unicorn Index AMC provides a valuable opportunity to gain exposure to some of the world’s fastest-growing private companies. The index approach mitigates the challenge of researching and managing direct investments in these firms, offering diversification and convenience in exchange for higher fees.

That said, for investors willing to put in the time and effort, directly investing in portfolio companies—when possible—could help mitigate the impact of fees. Still, Stableton’s index approach is a compelling solution for those seeking broad exposure to private market unicorns without navigating the complexity of selecting individual companies.

Deep Dive: Fundrise Venture Fund

Fundrise is one of the most accessible ways for everyday investors to enter the private markets. Its Venture Fund, also known as the Innovation Fund, focuses on high-growth private technology companies, offering a simple entry point to venture capital with minimal barriers. With a $10 minimum investment and no accreditation requirements, Fundrise makes private market investing approachable for nearly everyone.

The fund employs a “multi-stage” investment approach, targeting companies across their lifecycle—from early stage to late stage—while holding positions post-IPO for potential long-term gains. Sectors include artificial intelligence (AI), machine learning (ML), data infrastructure, and software, with the goal of capturing attractive growth opportunities.

Performance Overview

The Fundrise Innovation Fund has delivered an annualized return of 5.1% since its inception. This reflects steady growth, driven by investments in high-growth technology companies. For context, an investor placing $10,000 in the fund at inception could expect returns aligned with this performance, subject to compounding and fee impacts.

Fees and Accessibility

Fundrise’s fee structure is designed to remain simple and transparent:

• Management Fees: 0.85% annually.

• Advisory Fees: 0.15% annually.

Together, these total a 1.0% annual fee, which is competitive for private market funds.

Impact of Fees: Using the fund’s 5.1% annualized return, let’s analyze the impact of fees:

• With no fees, a $10,000 investment compounding at 5.1% annually would grow to $12,834 over five years, for a total gain of $2,834.

• With a 1.0% annual fee deducted, the same investment would grow to only $12,197, for a total gain of $2,197.

• This means $637, or approximately 22% of the total gains, is lost to fees over five years.

While Fundrise’s fees are relatively modest, they still compound over time, significantly reducing returns on gains. This example underscores the importance of considering costs when evaluating long-term investments.

Liquidity Constraints

While Fundrise offers unparalleled accessibility, its liquidity remains limited. Like most private market investments, the Innovation Fund requires investors to commit for the long term. The fund offers quarterly divestment windows, but these opportunities are not guaranteed and depend on Fundrise’s discretion. Investors should approach the fund with the expectation of holding their investment for several years.

Growth Potential vs. Risk

The Innovation Fund provides access to high-growth private companies with the potential for steady returns. However, its focus on technology startups carries inherent risk, and the fund’s smaller portfolio size of 25 holdings offers diversification but less breadth compared to larger indexes. Investors must also consider the limitations of less frequent rebalancing and illiquid investments.

Final Thoughts

The Fundrise Venture Fund is an excellent entry point for investors new to private markets. Its low fees and minimum investment requirement of $10 democratize access to venture capital, while its annualized return of 5.1% highlights the potential for steady, long-term growth.

However, this accessibility comes with trade-offs. Liquidity is limited, and fees—though modest—compound over time, impacting net returns. While more experienced investors might consider direct investments to avoid fees, Fundrise simplifies the process and provides a valuable on-ramp to private market opportunities.

Deep Dive: Destiny Tech100 (DXYZ)

The Destiny Tech100 Index, offered by Destiny (DXYZ), is a unique entry in private market investing as a publicly traded security. This structure makes it significantly more accessible and liquid than private market funds, while still offering exposure to 100 high-growth private technology companies.

Notable holdings include Stripe, Epic Games, SpaceX, and Impossible Foods, among others. With no accreditation requirements and a minimum investment of one share (currently priced at $58 USD), Destiny Tech100 has positioned itself as an innovative solution for retail investors seeking private market exposure.

What Is NAV, and Why Does It Matter?

Net Asset Value (NAV) represents the total value of the fund’s holdings, minus liabilities, divided by the number of shares outstanding. It provides a baseline measure of what the fund’s assets are objectively worth.

According to the fund’s prospectus, Destiny Tech100’s NAV stands at approximately $57 million. In stark contrast, the fund’s market cap currently exceeds $632 million, meaning investors are paying a 10x premium over the actual value of the underlying holdings.

Why the Massive Premium?

The 10x disconnect between NAV and market cap highlights extreme risk for investors. While private market funds often command a premium for liquidity or access, this level of overvaluation is highly unusual. Several factors may explain the discrepancy:

1. Ease of Access: The most plausible explanation is the convenience of accessing private market holdings through a publicly traded vehicle. For retail investors who cannot meet accreditation requirements or minimums for other private funds, DXYZ is one of the few ways to buy into high-profile private companies like SpaceX or Stripe.

2. Liquidity Premium: As a publicly traded security, DXYZ offers liquidity that traditional private market funds lack. This reduces risk for investors who might otherwise be locked into multi-year commitments. However, while a liquidity premium is typical, a 10x multiplier far exceeds what is seen even in public-to-private transitions.

3. Speculation and Hype: The public nature of DXYZ has attracted speculative interest, fueling volatility and inflating the share price. Much like a post-IPO pop, the market excitement has detached the price from the portfolio’s intrinsic value.

Do the Holdings Justify the Price?

The short answer is no. The prospectus confirms that the internal valuation of the portfolio aligns closely with secondary trading platforms, suggesting the holdings are not undervalued. The disconnect between NAV and market cap is therefore not a reflection of hidden value in the portfolio, but rather a function of market sentiment, accessibility, and speculation.

This creates a significant risk for investors: even if the underlying portfolio were to double or triple in value, those buying at today’s prices would still face losses unless the premium narrows dramatically.

Liquidity and Trading

Destiny Tech100’s greatest strength is its liquidity. Unlike private market funds that require multi-year lockups, shares in DXYZ can be traded on public markets at any time.

However, this liquidity also introduces risk. The share price is driven more by market sentiment and speculative activity than by the actual performance of the underlying holdings, leading to volatility and misalignment with intrinsic value.

Growth Potential vs. Risk

The Destiny Tech100 Index provides a rare opportunity for retail investors to access a basket of private technology companies with ease. Its 100 holdings span both early- and late-stage startups, offering diversified exposure within the tech sector.

But the risks are substantial. The 10x premium over NAV is a clear warning sign that speculative forces are at play. Paying such a steep markup for a portfolio that remains illiquid at the underlying level raises questions about the long-term viability of this investment.

Final Thoughts

Destiny Tech100 represents an innovative step forward in making private markets accessible to retail investors. For those seeking exposure to companies like SpaceX and Stripe without accreditation requirements, it offers a one-of-a-kind opportunity.

However, the extreme premium over NAV—currently 10x—makes DXYZ an inherently speculative investment. The ease of public market access comes at a steep cost, with investors paying significantly more than the portfolio’s intrinsic value.

For those willing to accept these risks, DXYZ offers convenience and liquidity. But for investors focused on fundamentals, the price-to-value disconnect should serve as a strong signal of caution.

Why Work with Cold Capital?

The private market indexes we’ve explored—Stableton, Fundrise, and Destiny Tech100—represent a few of the more prominent options available today, but they’re far from the only ones. As private markets expand, new indexes and opportunities are emerging, each with its own structure, fees, and trade-offs.

It’s critical to understand the details of these investments. Without careful analysis, you risk paying excessive fees, investing at inflated valuations, or committing to structures that don’t align with your financial goals. From high management fees to speculative premiums, the private market index space requires a discerning eye.

At Cold Capital, we help you navigate these complexities. Our detailed research, clear analysis, and actionable insights are designed to simplify private market investing, so you can confidently assess opportunities like these and avoid costly mistakes. Whether you’re investing in indexes or individual companies, we’re here to help you make informed, data-driven decisions.

As always, reach out to [email protected] with any questions and we’ll be sure to help out as we can!