Comparing Public & Private Equity

Public and private equity represent two primary ways investors can gain ownership in companies, but they differ widely in terms of accessibility, liquidity, risk, return potential, and governance.

Public equity refers to shares of companies that are traded on public stock exchanges, such as the New York Stock Exchange or NASDAQ. These investments are available to a broad range of investors, from individuals to large institutions, and generally have high liquidity. Investors can buy or sell shares relatively easily and at market prices. Public companies are required to adhere to strict regulatory standards, including regular financial disclosures, which provides transparency and helps investors make informed decisions. Due to the public nature of these markets, prices reflect current investor sentiment and are often influenced by macroeconomic events, market speculation, and news.

Private equity, on the other hand, involves investment in companies that are not publicly traded. These investments are usually made by private equity firms, venture capitalists, or accredited investors through funds or direct ownership. Private equity investments are typically illiquid, requiring investors to commit capital for extended periods—usually 5 to 10 years—until a profitable exit is achieved through a sale, IPO, or merger. In return for this illiquidity and risk, private equity investors often have greater influence over company strategy and operations, enabling them to drive improvements and increase the company’s value. Additionally, private companies are not subject to the same disclosure requirements, which can limit transparency but also allows management more freedom to focus on long-term growth rather than short-term market pressures.

From a performance perspective, public equity is generally less risky and offers potential, long-term gains, particularly when diversified across sectors and geographies. Private equity, though riskier, has the potential for significantly higher returns due to the ability to restructure businesses, capitalize on inefficiencies, and benefit from early-stage growth in startups.

Summary: Benefits of Diversification
Combining both public and private equity in a portfolio seeks to provide a more robust investment strategy. Public equity offers liquidity, transparency, and exposure to a wide range of sectors and regions. Private equity may provide diversification benefits, potentially higher returns, and access to opportunities that are not correlated with public markets. Together, they seek to create a balance between stability and growth, short-term flexibility and long-term value creation. Diversifying across both can help mitigate the risks associated with relying on a single asset class and may enhance portfolio resilience, particularly during periods of public market volatility. For investors seeking a more comprehensive, long-term approach to wealth building, a mix of public and private equity is a powerful and effective strategy.

Interested in learning more about how combining public and private equity into your portfolio may improve your diversification and returns? Reach out to us at KinneyMunro Wealth Advisors.

This article is provided for informational and educational purposes and does not constitute an offer or a recommendation to adopt any specific investment strategy. Diversification does not eliminate the risk of loss. All investments involve risk and the potential to lose principal, but private equity investments are generally more speculative and involve a higher degree of risk. Private equity investments are only suitable for long-term investors willing to forego liquidity and put capital at risk for an indefinite period of time. These investments may engage in leverage and other speculative practices that may increase volatility and risk of loss. They also typically have higher fees and expenses than other investment vehicles, and such fees and expenses will lower returns achieved by investors. Investment Advisory Services are offered through Mariner Platform Solutions (MPS), a SEC Registered Investment Adviser. KinneyMunro Wealth Advisors and MPS are not affiliated entities.

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