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Welcome everyone and thank you for joining us today. I'm Christina Shley and I sit within our customized portfolio solutions team working primarily with institutional clients. Over the last decade, some of the world's most valuable companies have remained private far longer than investors would have expected in previous market cycles. Companies like SpaceX, OpenAI, and Anthropic have accumulated extraordinary scale, attracted unprecedented amounts of capital, and in many cases become systemically important to the future of technology and artificial intelligence. As speculation grows around a potential new wave of mega IPOs, investors are asking several important questions. Why have these companies stayed private for so long? What would it take for them to become public? How would these listings differ from prior IPO cycles? And perhaps most importantly for institutional investors, what opportunities and risks could emerge as these companies transition from private to public market? To help us explore these questions, I'm joined by Aan and Dylan. Athan has been researching the evolution of private markets, AI infrastructure, and the potential next generation of public market leaders. Dylan works closely with institutional investors navigating portfolio construction, risk management, and implementation challenges associated with large private market exposures. We'll begin by examining the companies themselves and the forces driving this potential IPO wave. Then we'll shift to what it means for institutional portfolios and how investors are preparing for what could be one of the most consequential public market transitions in years. Athan, you recently wrote a research piece about the potential 2026 mega IPO class. To start us off, tell us more about these companies and how we got here. >> Sure. Thanks, Christina. It's great to be with you, Dylan, and our clients today on this webinar. I'll start by saying I think the simplest way to think about these companies is that they're not really three separate stories. They're part of the same story. A lot of companies out there try to claim to be at the center of the AI revolution, but SpaceX, Anthropic, and OpenAI can really make that claim in a way that I think most other companies cannot. Open AAI is now generating roughly two billion of revenue per month. Anthropic recently announced a funding round valuing the company at more than $900 billion. And SpaceX is increasingly becoming much more than just a rocket company. Historically, investors thought about SpaceX as a space business. Today, that description actually does not feel complete. If you look at some of the announcements over the past few weeks, you had SpaceX announce a major AI infrastructure agreement with Anthropic and Google as well that together represent roughly 26 billion of annualized revenue once those are fully ramped. SpaceX also announced a partnership with Curser, which is one of the fastest growing AI software companies. So taken together, those moves really suggest SpaceX wants exposure not only to the infrastructure layer of AI, but also to the software that's being built on top of it. And that's why I think these companies actually belong in the same conversation. Anthropic and Open AI are building the intelligence layer. SpaceX is increasingly building the compute, connectivity, and infrastructure layer. And together, these three companies are approaching a combined value of roughly $4 trillion. So just to put that into perspective, the next three largest private companies, which are data bricks, stripe, and are together worth less than $400 billion. So we're really talking about a completely different scale between those two categories of companies. uh these three companies have grown from ambitious startups into platforms that increasingly sit at the center of major tech trends and I think that's really why investors are paying attention. That's why the public markets are paying attention. So that's really how we got here. These three companies are now at a scale and they have ambitions that really require public market capital. >> Wow. You've really just described a group of companies that seem fundamentally different from the typical venture-backed IPO candidate. So that naturally raises the question of whether investors should think about this as just another IPO cycle or something entirely different. How would you compare this with previous per periods like the dot era or the 2021 reopening? >> Yeah, I I think the easiest mistake investors can make is assuming we're about to see another broad IPO reopening. I don't think that's what's happening. This is not 2021. It's not 1999. Those were really broad-based cycles. Um, at the peak of the dot boom, you had nearly 400 companies go public. In 2021, more than 300 300 companies went public. And if you include spaxs, that number is actually closer to 900. The market was willing to fund almost any growth story. This cycle does feel very different. The market isn't really saying bring us more IPOs. It's saying bring us the handful of private companies that actually matter. And I think that's a big distinction. The bar is just much higher today. Investors want scale. They want category leaders. They want businesses that are strategically important. The other thing that's different is just size. Private markets have allowed companies to stay private much longer than they used to. And as a result, these companies are arriving at public markets just far larger than prior generations. You know, we're not talking about5 billion companies, which we're talking about companies worth hundreds of billions of dollars or 1 to2 trillion dollars. And you know, that that actually does create an interesting trade-off. On the one hand, these companies may be among the defining businesses of the next decade, but on the other hand, investors are getting access much later in the value creation cycle. If you look back at you know Amazon and Nvidia for example those companies generated really extraordinary returns because public investors got in early but with SpaceX with Anthropic with Open AI investors are getting access after much of that value creation has already happened and you know I don't I don't think that means these IPOs can't work I just think it means the return profile is different this isn't really public market venture capital it's public ownership of already formed giant companies. And I think that's what's really unique um about this cycle. It's less about quantity. It's more about concentration. So, you know, I really think that's the big difference. This cycle is just about concentration and not quantity. >> Okay. Okay. And one of the other things I want to kind of touch back on is uh one of the reasons you just mentioned as well that the cycle looks different is how these companies have remained private far longer than the private prior generations of market leaders. So can you talk a little bit about how that happened? What changed in private markets that allowed companies of this scale to stay private for so long? >> Sure. Yeah. And I think that's one of the most important parts of the story, Christina. a decade ago, you know, companies of this size would have gone public much earlier. The reason that they didn't, it's, you know, it's actually pretty simple. Private markets have just evolved a lot. For years, people assumed companies eventually had to IPO to provide liquidity for employees and investors. And you know, that at least partially stopped being true as the private secondary markets really have grown larger and larger and just more sophisticated. So now employees could sell stock, investors could sell stock, new investors could buy stock, and you could do all of this without a public listing. And SpaceX is probably the best example. The company regularly organized secondary share sales while remaining private where employees got liquidity, investors got liquidity, and management retained control over timing. So, what's really remarkable is that SpaceX has not raised a traditional primary funding round since 2022 when it was valued at $125 billion. And today, the company's worth over 14 times that amount. So, a lot of the value creation happened after the company had effectively outgrown the traditional venture capital model. OpenAI followed a similar path. Uh late last year, employees of OpenAI sold about 7 billion of stock in a secondary transaction that valued the company at 500 billion. So, you know, those are big numbers. That's IPO level liquidity without actually being public. And it wasn't just limited to SpaceX and OpenAI. If you look across the venture ecosystem, secondary markets have really exploded. In fact, secondary deals for venture-backed companies reached about 112 billion on an annualized basis earlier this year. So for a period, secondary volume actually exceeded the money raised through IPOs. And you know, that's a really remarkable statistic. Private company shares became so liquid that secondary markets briefly became larger than the IPO market itself. And you know, that's really how these companies just stayed private for so long. private markets just became capable of solving the liquidity problem at least partially and that allowed companies to remain private longer than anyone expected. And there's also just another timing point worth mentioning. If you go back um you know to the 90s and the early 2000s, tech companies typically went public around age 8 and today it's closer to age 11. Open AAI turns 11 years old this year. SpaceX is 24 years old. So by IPO standards, SpaceX is practically, you know, like a grandparent at this stage. These are not young startups racing to go public. They're more mature private companies. They solved the liquidity problem, you know, years ago in the case of SpaceX and they're confronting now a new problem which is scale. And so it's really this scale problem that's ultimately pulling them towards the public markets. >> That's really helpful. So, um, thank you, Ethan, for explaining how private markets evolved to provide liquidity and support companies at this unprecedented scale. Um, but I think there's been another consequence uh of that trend. Dylan, what has this meant for institutional portfolios? >> Yeah, first let me just say I'm glad this is being recorded because normally when I'm on a call with Ethan, I'm furiously scratching down notes and everything because there's always so much information. So, I'll definitely have to go back and rewatch this part. Um but yeah, we've seen this impact for years across our institutional client base. A lot of these a lot of these clients have pretty uh robust private equity programs. They might have been very early adopters potentially decades ago. And as Ethan can attest, you want to have diversification not just across private equity managers, but also across vintage years as well. And the very best relationships tend to have that kind of ongoing capital allocation. So uh these clients might very well be pledging more and more capital even as the size of that private equity portfolio continues to grow. Other thing to consider is the denominator effect. So this is where you know public markets they might be priced and experience some downturns as the markets naturally cycle. You also have the benefit payments or in the case of endowments and foundations you have annual draws. So all of these things kind of come together where you might have public markets supplying the liquidity for the portfolio and naturally you know coming down in size relative to the private equity segment of the portfolio which could either be static or potentially increasing. And so you tend to have a situation where you have private equity or private market exposure really dominating or being overweight the natural allocation within the client's strategic asset allocation. So couple different ways to kind of solve for this. Uh secondaries as Aan already covered is one way to kind of get that exposure converted to liquidity that you can either redeploy elsewhere in your portfolio or uh a lot of our clients use a rebalancing overlay. That's where we'll use capital efficient derivatives to manage go long and short the relative exposure within the given client's total portfolio. That way we're not increasing or decreasing that exposure. We're just trying to realign it and get them closer back to their strategic asset allocation. But either way, all these clients are going to be very happy to get that capital back and redeploy it across their portfolio. >> Thanks. That's a helpful uh context on the uh denominator effect. So since investors have already been feeling the effects of these companies staying private, Ethan, what if and when they do decide to go public, what changes? What does it take to go public today? And are these companies pursuing IPOs out of necessity or really just a strategic choice at this point? >> Yeah, I I think that's a great question. I mean, the key question is really like why now, right? Why not just stay private for another five years? And I think the answer is that the next phase for these companies just looks very different from the last phase. You know, these were ventureback companies originally. The first phase was innovation. The second phase was commercialization. And now the third phase is really infrastructure. And infrastructure requires capital, a lot of capital. Anthropic and open AI are increasingly competing in what looks like an AI arms race. The competitive advantage. It's not just model quality. It's also access to compute, access to power, access to data centers, access to infrastructure. And the scale of investment required is just becoming enormous. Um you know the top AI labs generated about 17 billion of revenue last year and that figure is expected to approach 90 to 100 billion this year. So the growth is just extraordinary you know in revenue but so are the capital requirements and you know you see the same thing with the hyperscalers. Look at Amazon, Microsoft, Meta, Alphabet. They're expected to spend about 725 billion on AI infrastructure in 26 alone. You know, Alphabet recently announced they're raising 85 billion in equity. And you know, if you think about that, that's one of the most profitable companies in the world is raising capital to build AI infrastructure. And so that just tells you how large this opportunity has become. And that's really the lens through which I think investors should view these IPOs. They're not traditional venture-backed exits. The founders don't need an exit. Employees already have liquidity options or at least a lot of liquidity options. And many investors have already sold portions of their holdings through private transactions. So I mean that doesn't mean liquidity is irrelevant. It just means it's no longer the central issue. Private markets have become very effective at providing liquidity, but what they have not fully solved is scale. And that's just because the next phase is just extraordinarily capital intensive. The infrastructure requirements are measured in, you know, tens and hundreds of billions of dollars. And you know, at some point, even trillion dollar private markets just begin to look small relative to the opportunity. So if you take SpaceX, the company's hoping to raise about 75 billion. That would be nearly three times larger than Saudi Aramco's record IPO, which was the largest um equity raise in the public markets before, you know, what's coming with SpaceX. So investors aren't really underwriting last year's revenue. They're underwriting the next generation of technology infrastructure. So, you know, I think these companies are going public because the next phase just increasingly requires access to capital at a scale that public markets are uniquely positioned to provide. So, you know, private markets help finance the first chapter and I think public markets are just really needed to finance the next one. So, that's really why these companies are going public now. >> Okay, got it. So if these IPOs are really infrastructure financing events rather than traditional exits, maybe that creates a different set of considerations for existing investors. Dylan, what risks are institutional clients focused on as these companies move toward public markets? >> Yeah, definitely top of mind. Let me first talk about what's not a risk and that's the upside, right? A lot of these clients have been uh early investors and so they're looking at I mean multiples upon multiples of returns not percentages here or there you know. So that's like a very key kind of consideration when we talk about what they are truly worried about when it comes to risk. I mean number one is going to be downside. Second part is going to be volatility in their overall portfolio and then benchmark misalignment. Right? So downside's easy one right? Again they've experienced these huge gains. uh their investment committees probably love them and so they want to protect those. They want to you know look out for situations where those gains might get eroded uh through their entry into the public markets. The portfolio volatility is also a connected idea, right? You've had these companies remain private, experience great growth outside of the public markets. As soon as they enter the portfolio in that public market status, all of a sudden they're going to go from being valued, I don't know, quarterly to millisecond by millisecond scrutiny, retail investors, everyone paying attention, moving the price. And so not only is that a lot more volatility than when they were back in their, you know, private equity form, but they're potentially overweight over their intended target within the client's total strategic asset allocation. So you're introducing a great deal of volatility in a very substantially sized portion of the portfolio. Benchmark alignment, I'm sure we'll get into more of it later, but they're definitely going to be overweight. And so a lot of these clients have a tracking error, right? asset deviation of their portfolio versus their kind of policy benchmark is a major metric that they want to track and it's a major risk measurement. And so these clients are looking for multiple different paths to managing this risk. And that's where we love working with clients to help them figure out what toolkit will work for them, how they need to be thinking about it and what we can do to help them manage those risks. >> Yeah. So once clients have identified those risks, the next question to your point is what can they actually do about them? So how have we seen institutions starting to approach risk management and implementation in practice? >> Do you think I can get away with the it depends answer? Probably not, right? Uh really the clients fall into major two major camps. There are those who are looking to reduce their exposure. Then there are those who are looking to maintain it but maintain it within reasonable ranges of their benchmark within their total strategic asset allocation. So the first task is definitely stop by your legal team, figure out what you can and can't do, what you can hedge, what you can't hedge, when you can trade, because one of the first tools that we like to work with with clients is options. And so you really have to make sure that you have the legal ability to hedge your position using derivatives. But assuming that you've checked that box and you know you've kind of engaged a provider, we really like options because if you think about what they're trying to protect, they have these huge gains, this big run up in the value of this underlying position and they're worried about the downside, right? So think about a put option. This is where a client would go out there, buy a put. It's very similar to buying insurance, right? You are worried that something's going to go wrong. In this case, it would be a market decline, one that you're not comfortable with. And so, uh, if you combine the underlying position with buying a put option, the put option will kick in and start giving you protection or offsetting the losses if the stock starts falling below a certain designated level. Now, like insurance, you have to pay for it. And just like insurance, what you end up paying is called a premium. And so often times a client will look for ways to kind of manage that premium expense because it can be pretty hefty especially with the amount of uncertainty or uh we like calling it implied volatility associated with the name. And so this option structure might be something in the form of a costless caller. So this is where you combine buying that put with selling a call. So by selling a call, what you're doing is, you know, you're selling something and receiving the premium instead of paying the premium. And the goal is to align that with the cost of the put, the cost of the protection. You're giving something up, though, for sure. You're giving up any potential upside above a certain level. Now, keep in mind, these are the clients who are very early investors who've already experienced pretty significant gains in most cases. So they are far less concerned about the incremental bit of upside capture. What they really want to do is protect potential downside. So what you end up happening is of the full range of possible outcomes for owning the underlying security, you're kind of chopping off the two ends. You really want to limit it to let's just say plus or minus 10%. Right? So you'll experience all the fun market movements between a 10% decline and a 10% increase but anything beyond that you're not going to participate because you have the option that is going to be offsetting any gains or losses in the underlying. Now, um I need to kind of caveat all this by saying that in order to trade these options, there are certain documentation or setup that's required. In the OTC space, the over-the-counter space, you need uh is the documentation. Uh in the listed option space, you need to open up a broker account. Now, these can have pretty lengthy onboarding time frames, but our clients have found that they are a very useful toolkit and you end up using them later. I mean, I'm sure we'll talk about it uh further on as well that uh there are more IPOs coming down the pipe. There are other situations where risk might want to be managed or you might want to express a certain view. So, having these capabilities in place, it's always nice to have them uh ahead of time. But, you know, even in this market environment that we're in, you certainly can make a case for adding those tools to your toolkit. So all that was in the context of okay let's kind of uh limit that range of possible outcomes. You wait for the markets to settle and then you can start actually liquidating the underlying security. So one of the things that we hate seeing on our team is when you have a really good hedge in place checks all the boxes you meet all your objectives but then you have some suboptimal execution at the very end where you start kind of eroding the benefit of that hedge. So, what I'm talking about is, you know, this stock might still be volatile uh 6 months out, who knows when they're actually going to be able to sell the position. But if you are closing down the hedge and you're trying to sell the security, every little bit of misalignment between those two events is exposure, right? That's the very exposure that you're trying to hedge or protect against. So, the closer you can coordinate those things, the better off that you're going to be. That's a really helpful context and good to keep in mind. Um, one thing that I might add on the top of that that's been a little bit unique with these uh mega IPOs than with some of the ones that we saw um maybe back in 2021 is uh that we've have some clients just given the unknowns here who are concerned about that short call on that potential costless caller. And so we are seeing a lot more interest to your point in they want to protect their gains. they're happy with the runup that they've gotten on names so far. And so clients looking at just outright puts, willing to kind of pay that premium. Um, or looking at potentially a put spread instead, just not having to worry about a potential really positive event kind of happening on the on the upside. Um >> you've uh you've talked about now clients who want to uh reduce exposure, but some investors are looking to maybe keep their exposure, but just bring it kind of back within some of those bounds that you talked about kind of closer to policy. So that leads kind of directly into the role of benchmarks and index inclusion. How are index providers approaching these mega IPOs and what do investors need to be paying attention to? Yeah, big big topic. Um, a lot of hair on this one. Uh, so let me just focus on the parts that kind of matter the most and it needs to come along with a disclaimer that this is based on information that we know today. Uh, cuz the news cycle is giving us a lot of fun little tidbits to to process feels like every day or every week. But um, of the four kind of I'll call them major index providers, three of them have already uh kind of announced that they're going to be following a fasttrack procedure. So we're talking about Footsie, Russell, MSCI, and NASDAQ. So within the first 5 to 15 trading days, you know, these major index providers are going to start uh including the SpaceX name or any future mega IPO once it meets certain criteria in their benchmark uh building blocks. And so the really important thing here to note is when we talk about they're going to start including them, they're going to include them at their float or free float, not at the market value. So you'll see a headline, you know, uh SpaceX 1.8 trillion, that's not the weight that's getting added to these benchmarks on day one or or even day five or 15. I mean, the free float estimates are closer to the 5% range. So if you think about these benchmarks and when they include the name, we're talking basis points in the beginning, right? And I didn't mention the fourth one which is S&P and they've actually declined any kind of fasttrack protocol. Even when they were considering a quote unquote fasttrack, it was like a six-month time frame. Now they're going to follow their standard protocol which is closer to a year. and they're also going to apply the criteria of you know profitability and certain free float criteria need to be met before they'll consider including the name. So this creates some very interesting dynamics, right? So uh not only is it all going to be floatbased, but over the next call it 180 days as lockups expire and restrictions kind of ease, people start uh releasing shares into the public market, that float will naturally increase. And so the waiting will start to increase over time as we approach, you know, 6 months or even a year out. So, it just might be the case where that S&P where they're kind of sitting out this initial uh surge of interest into including the name. By the time it gets to the point where they would consider including it, they might be able to start including at the the full weight within the index, much closer to the actual market capitalization as opposed to getting the headlines and including it at a very very small weight. So, how does this impact our clients? those that have uh private stake that they now have you know public shares they might also have let's say uh a large passive US equity portfolio right maybe they don't believe that there's a lot of alpha opportunities in that given segment so they decided to go passive so call it 5 to 15 trading days after the IPO those benchmarks some of them might start picking up the name if that passive vehicle is replicating one of those benchmarks then it's going to start including that exposure as well. And so from a client's perspective, um they look across all their investments, right? They look at the shares they got from their private equity stake. They look at the exposure from their passive manager. And guess what? They might end up being overweight versus a benchmark even at a small weight. So to avoid this kind of a double counting uh you know situation that they might be in, a lot of them are looking to like a completion mandate or a custom beta. And that's where instead of just perfectly replicating the passive or benchmark, you know, we can set up a, you know, custom mandate which will allow you to apply certain exclusions or screens. And so it's pretty easy to remove that one name. And so you have the shares from your private equity exposure combined with all the other underlying names in the passive benchmark. And together that might end up getting you closer to your true benchmark exposure, you know. And for those uh endowments of foundations or even health care systems, the concept of screens might be pretty familiar. Uh they oftentimes will try to align their investment portfolio with the mission of their underlying entity. And so this can be, you know, applicable for that might already be doing it's just adding another name to the list that they're excluding. Of course, it's also very applicable for future IPOs and other situations where they want to be excluding names. still investing in the broad market, but doing it in a more thoughtful and intentional way to avoid exposure mismatches as they try to align their total portfolio with what their policy portfolio says they should be invested in. >> Thanks for talking through that, Dylan. That's a lot to consider. We've spent a lot of time discussing what these specific companies could mean for our clients portfolios. Uh but let's finish by looking ahead. Assuming some combination of SpaceX, OpenAI, and Anthropic ultimately go public, Ethan, what does that mean for the broader IPO market and the next generation of technology companies? >> Yeah, sure. Um, you know, I think, you know, I think the market's going to learn a lot from these IPOs. um you know not just about like the companies themselves um but also just about what investors actually want to own in the next tech cycle. If these IPOs perform well I think the next wave of IPOs just you know obviously will become easier. So those are companies like you know some of the ones I mentioned before data brick, stripe, andol, canva and other large private market leaders will just be watching very closely. You know even this next wave of companies are already large businesses. Data bricks for example has surpassed a $5 billion revenue run rate. Stripe processed nearly$2 trillion of payment volume last year. And is now worth more than $60 billion. So in almost any other IPO cycle, those would be headline companies in and of themselves. But you know, SpaceX, Anthropic, and OpenAI are just so large that they're next tier. And you know, I think that's just the key point that what I said earlier. It's just it's not going to be a broad reopening of the IPO market. It's a selective reopening. Even if these companies are successful, the market just isn't asking for hundreds of new listings. It's asking for a smaller number of category defining companies. And we're starting to see um upgrades and increases in in forecasts for 26 IPO volume. Goldman Sachs last week recently increased its estimate for US IPO issuance this year to 225 billion. You know, again, much of that's just being driven by a handful of large companies, not hundreds of them. And I think the more interesting question is actually what happens to traditional software, which has also gotten a lot of headlines. You know, in peak 21, many of these software companies were trading at, you know, 20 times revenue or even higher. And today, many trade closer to five to six times revenue or lower. And investors are just asking different questions of these companies. is does AI make the business stronger? Does AI make the business more vulnerable? You know, some of these legacy software as a service companies will adapt, some won't. And I think that's why this cycle um you know, one of the reasons this cycle matters is it's not just about who comes public. It's about how investors are choosing to allocate capital across technology. you know, public investors are effectively deciding which business models deserve premium valuations in this AI era. And really, SpaceX, Anthropic, and OpenAI are the first major tests. So, when I look at these IPOs, you know, I don't just see these three companies in isolation going public. You know, I think the market's just really trying to determine what deserves premium valuations in the next tech cycle. And I think investors are paying, you know, very close attention to how these offerings ultimately perform. So, it's going to be really interesting to watch the next few weeks and months to see how how all of this really plays out. >> Yeah, we will definitely all be watching, I'm sure. Well, AA and Dylan, thank you both for the discussion. Um, a few key themes I think stand out from today's conversation. First, this potential IPO wave appears fundamentally different from prior cycles. Rather than a broad reopening of the market, we're talking about a small number of exceptionally large companies that sit at the center of the AI infrastructure buildout and may require public market capital to support that next phase of growth. Second, the evolution of private markets has changed how value is created and captured. So companies are able to remain private much longer than they once could, meaning many institutional investors already have significant exposure before an IPO ever occurs. And third, for those investors, the challenge is no longer simply gaining access. It's managing concentration, liquidity, benchmark alignment, and risk. As these private holdings transition into public market securities, the investors who prepare ahead of time may be best positioned to navigate whatever comes next. So whether 2026 ultimately becomes the year of the mega IPO or not, the issues we've discussed today, such as AI infrastructure, private market scale, portfolio construction, and index evolution are likely to remain central themes for institutional investors for years to come. Thank you all for joining us and we appreciate your time and attention. We look forward to continuing this conversation in future discussions.