> There’s plenty of argument about how if a company has an IPO then they are, by definition, part of the market

By portfolio theory, all assets are part of the market. Public and private. The challenge is rebalancing cost, which is driven by transaction costs. Having a tiny percent of every single asset rebalanced every second is great in theory, since you'll be diversified across the market as a whole, but you'll also lose all your money to fees.

This is why the S&P 500 exists. It's a limited number of names that are very liquid, i.e. transactable at scale at reasonable cost. As trading fees went down we saw larger and larger indices.