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The indexes themselves might underperform an index+VC strategy though if they don't have access to high-growth companies that are staying private.

Even if investors shouldn't pick stocks, it might be wise for them to invest in an index of companies that they are now prevented from investing in.

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Supply and demand

Returns from private companies go up -> more VCs enter the market with higher returns increasing competition -> valuations get higher (meaning founders/employees get to keep more stock while investors get less) -> returns deflate and we are back at a balance.

There is a reason VCs have been complaining about sky high valuations and it's because most VC's don't even beat the sp 500.

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