Private Markets vs. Public Markets: What You Need to Know

Investing in private and public markets offers different opportunities and challenges,
depending on an individual’s financial goals. While public market investing is widely
known , private markets are a fast-growing sector that includes venture-backed startups
and private equity-backed enterprises. As the PitchBook Private Markets Guide highlights,
“If you’re overlooking it, you’re missing a major, fast-growing sector of the economy.”¹ This
guide examines the key aspects of private and public markets to guide informed
investment decisions.

Private Markets

What are Private Markets?

Private markets involve investments not traded on public exchanges, such as private
equity, venture capital, private debt, and hedge funds. Investors can gain exposure directly by purchasing shares in private companies or indirectly through private equity funds.

Benefits of Private Marketing Investing

Private markets offer several advantages:

• Higher Return Potential: Studies vary; however, certain data may show private equity has delivered robust returns over time.^{2 3 4}

• Diversification: Private equity may add additional diversification to a personal investment portfolio. ^{2 3}

• Lower Volatility: With long-term commitments, private investments are less impacted by the daily movements in markets. ^{2 3}

Private Market Investing Risks

Despite the benefits, private markets pose challenges:

• Long-Term Commitment: Investments typically require 5-10 year commitment periods.
• Complex Tax Reporting: Investors face intricate filings, such as Schedule K-1 forms.
• High Fees: Management fees associated with private equity funds are often significant due to the management expertise required.
• Illiquidity: Investors should not expect to be able to redeem their investments when, and in the quantity, desired.
• High Risk: An investment is not suitable for all investors. There is a risk of loss of part or all principal invested.

Public Markets

What Are Public Markets?

Public markets consist of companies listed on stock exchanges, enabling individuals and institutions to trade shares. These markets are known for their accessibility and liquidity.

Benefits of Public Markets

Public markets have some advantages over private markets:

• Accessibility: Lower minimum investment thresholds make public markets more inclusive

• Liquidity: Investors can typically buy and sell shares more quickly.

Risks of Public Markets

However, there are some disadvantages to public markets.

1. Volatility: Share prices fluctuate due to market sentiment and external factors.
2. Short-Term Pressures: Public companies can be pressured to prioritize quarterly performance over long-term strategies.

Comparing Private and Public Markets

Here are five major differences between private and public markets:

1. Accessibility: Public markets are more accessible, while private markets are restricted to accredited investors and high-net-worth individuals.
2. Liquidity: Public markets generally offer quick tradeability, while private investments require longer-term commitments.
3. Transparency: Public companies must meet strict reporting standards, unlike private investments, which have fewer disclosure requirements.
4. Management Style: Private investors often actively advise companies, whereas public investors typically adopt a passive role.
5. Stage of Investment: Private markets typically include early-stage companies, while public markets often include established entities.

Conclusion

Both private and public markets play crucial roles in supporting economic growth and shaping investment strategies. Choosing between them depends on individual financial goals, risk tolerance, and time horizons. A diversified approach that includes both markets can enhance portfolio performance and resilience, helping investors achieve long-term success.

Important Information:  This material is for informational purposes only and does not constitute investment advice. Consult professional advisors for financial decisions. Past performance is not indicative of future results.  Private placement investments are very high risk, charge high fees to investors, are illiquid, and an investor can lose part or all their invested capital. We strongly encourage investors to take complete their own independent due diligence before investing.

Sources

1. https://www.sec.gov/spotlight/sbcfac/2020-02-04-presentation-pitchbook-private-markets-guide.pdf. Accessed December 2024 ↩︎
2. https://www.hamiltonlane.com/en-us/insight/truths-revealed/private-beats-public. Accessed January 2025 ↩︎
3. https://www.mckinsey.com/~/media/mckinsey/industries/private%20equity%20and%20principal%20investors/our%20insights/mckinseys%20private%20markets%20annual%20review/2021/mckinsey-global-private-markets-review-2021-v3.pdf. Accessed January 2025 ↩︎
4. https://www.cambridgeassociates.com/insight/building-winning-portfolios-through-private-investments/. Accessed January 2025 ↩︎
5. https://www.mckinsey.com/~/media/mckinsey/industries/private%20equity%20and%20principal%20investors/our%20insights/mckinseys%20private%20markets%20annual%20review/2021/mckinsey-global-private-markets-review-2021-v3.pdf. Accessed January 2025 ↩︎
6. https://www.cambridgeassociates.com/insight/building-winning-portfolios-through-private-investments/. Accessed January 2025 ↩︎
7. https://www.mckinsey.com/~/media/mckinsey/industries/private%20equity%20and%20principal%20investors/our%20insights/mckinseys%20private%20markets%20annual%20review/2021/mckinsey-global-private-markets-review-2021-v3.pdf. Accessed January 2025 ↩︎
8. https://www.cambridgeassociates.com/insight/building-winning-portfolios-through-private-investments/. Accessed January 2025 ↩︎