Passive Investing in Private Markets: What’s Changing and Why It Matters

Passive investing has quietly become the dominant force in public markets. Thanks to index funds and ETFs, more investors are choosing simple, low-cost strategies that aim to match the market rather than beat it. Today, passive funds manage more money globally than active ones.

The appeal is clear: broad market exposure, lower fees, and solid long-term performance without the need to constantly pick stocks.

But while this approach is well established in public markets, it’s only just starting to take shape in private markets. This raises an important question: If passive works so well in public investing, why has it taken so long to reach private assets?

Let’s look at what’s made passive investing so successful in public markets, and why applying it to private market investments has been more complicated. We’ll also explore how firms are beginning to overcome those challenges and what that could mean for the future of passive strategies in private equity and beyond.

Passive investing has become a preferred strategy for a growing number of investors. As market tools have improved and cost awareness has increased, more people are turning to simple, rule-based approaches that aim to match market performance rather than beat it.

The Shift from Active to Passive Investing

Passive investing has officially surpassed active management in global markets. According to the latest data from the Investment Company Institute (ICI), indexed mutual funds and ETFs now manage $16.79 trillion—outpacing the $15.88 trillion held in actively managed long-term funds.

This shift has also been influenced by growing skepticism toward high active management fees. As performance gaps narrowed, the value of paying more for active selection became harder to justify. Passive strategies have become the default choice for many retirement plans and long-term portfolios.

Source: ICI, “Active and Index Combined Long-Term Mutual Funds and Exchange-Traded Funds (ETFs)”, May 2025

Over time, most active managers fail to outperform their benchmarks, while passive strategies tend to deliver lower fees and more reliable returns. According to the latest SPIVA U.S. Scorecard from S&P Dow Jones Indices, 89.70% of all domestic equity funds underperformed their benchmarks over the 10-year period ending December 2024. For large-cap funds specifically, 84.34% underperformed the S&P 500 over 10 years. The research consistently shows that underperformance rates typically rose as time horizons lengthened, and over the 15-year period ending December 2024, there were no categories in which a majority of active managers outperformed.

Role of ETFs and Indexed Funds

ETFs and index funds have played a major role in the rise of passive investing. ETFs in particular offer daily liquidity, transparent holdings, and the ability to trade on exchanges like stocks. These features make them accessible and easy to manage within a broader portfolio.

Indexing has also become a core strategy for long-term investors. It provides broad market exposure, reduces concentration risk, and aligns well with goals such as retirement or wealth preservation over time.

What Makes Public Markets Work for Indexing

Public markets provide the structure that passive strategies need to function efficiently. Daily pricing, standardized disclosures, and established benchmarks enable index funds and ETFs to track performance accurately.

Several features explain why indexing prospers in public markets:

• Daily asset pricing: Stocks and bonds trade on exchanges with constant price updates, allowing index funds to replicate performance closely and update valuations in real time.
• Uniform financial reporting: Public companies follow strict accounting standards and disclose quarterly financials, which feed into reliable benchmarks.
• Market depth and liquidity: High trading volumes and investor diversity make it easier to build diversified portfolios that reflect broad market movements.
• Benchmark consistency: Major indices like the S&P 500 or MSCI World provide clear, stable references for index construction and performance comparison.

These features support a passive approach where investors can rely on transparency, simplicity, and low tracking error.

Lessons Learned from Public Market Indexing

The rise of passive investing in public markets has changed how many people invest. What began as a low-cost alternative is now the default strategy for millions of long-term investors.

Some key takeaways from this shift include:

• Investor behavior has shifted toward buy-and-hold strategies. Instead of trying to time markets, many investors now focus on consistent exposure over time.
• Cost sensitivity has increased. With indexing proving effective, high management fees have become harder to justify.
• Policy and regulation play a critical role. The success of indexing depends on frameworks that enforce fair disclosure, transparent pricing, and consistent governance.
• Product design matters. ETFs and mutual funds succeeded not just due to performance, but also because of accessibility, tradability, and tax efficiency.

These lessons offer insight into what private markets may need if passive investing is to take hold there too.

Bringing passive investing into private markets has been far more complicated than in public markets. The key elements that support indexing are mostly missing. These limitations have influenced how private funds operate and explain why passive models have been slow to develop.

Structural Challenges

Despite its growth, private equity still faces structural hurdles that limit its comparability to public markets. These challenges impact transparency, liquidity, and valuation consistency:

• Limited data availability: Information on private companies is often scarce, inconsistently reported, or kept confidential, making it difficult to assess performance or compare across funds.
• Illiquidity: Most private assets cannot be traded quickly. This restricts the design of investment products that require regular pricing or daily investor access, unlike public market funds.
• Complex valuation: Private investments are not priced daily. Without frequent market pricing, it becomes harder to benchmark returns or maintain consistent reporting standards.

These limitations make it difficult to apply passive strategies or build index-based products that function like their public market counterparts. Investors must rely on careful manager selection and long-term commitment to participate effectively in private equity.

Passive investing depends on clear, consistent data and scalable structures. Traditional private equity and venture capital, however, have relied on customized deals and one-on-one relationships between fund managers and investors.

These markets have developed with a focus on active management, using tailored strategies for each investment. Until recently, there has been little infrastructure to support more standardized or automated approaches. Solving these issues is a necessary step for passive models to take root in private markets.

BlackRock and Industry Movement

Private markets have always leaned toward active management, but that’s beginning to change. Larry Fink, CEO of BlackRock, has shared his vision of building private market indices that could work much like index funds in public markets. The idea is to bring more structure, transparency and scale to a space that has traditionally been more fragmented.

To support this vision, BlackRock has made several acquisitions and invested in technology and infrastructure. These moves are aimed at making it easier to track and manage private investments in a more consistent way. It’s a step toward creating passive products that could give investors broad access without having to rely on handpicked deals.

Emerging Indexing Models

Some firms are starting to experiment with index-like models using fund-of-funds or diversified secondary portfolios. These vehicles aim to offer wide exposure to private markets, similar to how an ETF tracks an index.

Technology is also playing a big part. Better data, more consistent reporting, and digital platforms are making it more realistic to build passive strategies in private investing. It’s still early, but the building blocks are starting to fall into place.

Tech Infrastructure and the Role of Data

Building index-like products in private markets depends heavily on the emergence of new data infrastructure and transparency initiatives. Traditional private equity reporting has been fragmented and manual, but that is beginning to change with three key developments.

• New data providers and enhanced analytics: Specialized data providers are now collecting comprehensive information on private market transactions and expanding beyond basic financial metrics. These firms gather detailed data on private companies including ESG evaluations, governance structures, and operational metrics that were previously unavailable to outside investors. This enhanced data collection enables more sophisticated analysis and risk assessment of private market opportunities, creating the foundation for systematic investment approaches.
• Index provider innovation: Morningstar has led the charge in creating standardized benchmarks for private markets with their PitchBook Global Unicorn Index series launched in November 2023. These indices represent the first systematic attempt to provide daily insights into late-stage venture capital performance, employing proprietary mark-to-model pricing methodologies. Other index providers are following suit, developing frameworks that can translate private market complexity into trackable, comparable benchmarks similar to what exists in public markets.
• Increased Corporate Transparency: Many private companies, particularly larger unicorns, are voluntarily sharing more operational and financial data with stakeholders than ever before. This shift toward greater transparency includes regular performance updates, ESG reporting, and strategic communications that mirror public company practices. As private companies compete for capital and talent, they're adopting disclosure standards that make them more accessible to institutional analysis and index construction.

These innovations are closing the gap between private and public markets. With improved data quality, standardized benchmarking, and enhanced corporate transparency, firms can start to build scalable products that track diversified exposures—bringing private assets one step closer to index-style investing.

As passive investing begins to take hold in private markets, it is also reshaping how investors gain entry. Traditional gatekeeping and structural barriers are starting to give way to new models that emphasize accessibility, transparency, and scale.

Democratizing Institutional-Only Opportunities

Private markets have traditionally been reserved for large institutions and ultra-high-net-worth individuals. Minimum investment sizes, long lock-up periods, and complex fund structures made entry difficult for most investors.

Today, new platforms are working to change that. By pooling capital from multiple investors and offering managed access, they are lowering the threshold for participation. These structures also provide clearer fee terms, helping to align incentives and improve transparency.

This shift is making private equity and similar assets more approachable for accredited individuals who previously lacked direct access. It reflects a broader trend toward making alternative investments part of diversified portfolios.

In 2022, Swissquote teamed up with Stableton to exclusively offer the Stableton Unicorn Index AMC—a groundbreaking investment product that provides investors with passive access to the world's most promising pre-IPO tech unicorns.

Why This Became Possible Just Now

This passive approach to pre-IPO investing only recently became feasible due to three key market developments. First, the secondary market for privately held unicorns expanded dramatically to $162 billion, creating the liquidity necessary for index-based strategies. Second, new data providers like Morningstar began providing comprehensive data on 1,350+ unicorns, enabling the creation of systematic index methodologies that launched in November 2022. Finally, specialized firms like Stableton developed the transaction expertise needed to execute this strategy efficiently, with a proven track record of over 150+ successful transactions in the private markets space.

As the exclusive launch partner, Swissquote is excited to offer this innovative solution, making high-growth private assets more accessible and transparent through a passive indexing approach that was previously impossible to implement.

Important Considerations for Pre-IPO Investing

While passive strategies are expanding into private markets, it's important to understand that private markets remain less liquid than public markets, requiring investors to rely on specialized experts to navigate these complexities effectively. The Stableton Unicorn Index AMC provides semi-liquid access to pre-IPO tech unicorns, offering flexibility with some limitations, but it is not as liquid as traditional ETFs that track public indices.

The expansion of passive access to private markets also requires new regulatory frameworks that don't yet exist in many jurisdictions, with transparency standards needing establishment and oversight mechanisms balancing innovation with investor protection across varying regulatory regimes. Swissquote's offering of the Stableton Unicorn Index AMC demonstrates how these challenges can be navigated responsibly, operating under high compliance standards.

The trend is clearly moving toward greater accessibility and standardization in private markets, and this evolution essentially started with pre-IPO private companies. As data transparency improves and secondary markets develop, passive access to private markets will continue to become more sophisticated and accessible, with Swissquote proud to be at the forefront of this innovation while ensuring proper safeguards remain in place

The content in this article is provided for educational purposes only. It does not constitute investment advice, financial recommendations, or promotional material.

The content in this article is provided for educational purposes only. It does not constitute investment advice, financial recommendations, or promotional material.