The Pros and Cons of Private vs. Public Equity
Whether you’re shopping at the local mall, or using a social media platform, we all use and interact with products and services from both public and private companies. When it comes to building an investment portfolio, strong returns are a powerful driver for private investments, but public securities are readily available to be converted into cash at any moment. So which type of equity is best to invest in, and how do you know if you’ve invested in the right one? The answer isn’t quite so simple, and even the most stable of investments like stocks, bonds, and mutual funds can lose value if market conditions sour.
For businesses, equity is an opportunity to sell off shares of ownership in exchange for cash investment – all with the goal of earning returns and growing the business over time. Equity investments fall into two categories: private equity and public equity. Knowing the differences between the two is crucial for maximizing investments – and doing so intelligently. The difference between private equity and public equity is that public shares are available for non-accredited investors to buy, sell, or trade, and private equity interests are generally only available to accredited investors. While investing in either type of equity carries risk, there are several key differences that are important to know as you build your investment portfolio.
In this blog, you will learn:
The primary characteristics of both private and public equity
The key benefits and disadvantages of each investment option
How to build a strong investment portfolio through trusted partnerships
Keep reading to learn the key differences between private and public equity, as well as the pros and cons of each investment route. At UD+P, we’re here to help ensure investors have the information they need to make valuable investments that promote long-term, sustainable growth.
Learn more about investing with UD+P on our Investors Page.
Private Equity vs. Public Equity
What Is Private Equity?
Private equity is commonly used to invest in companies perceived to have growth potential and funds an expansion or pivot. It’s no secret that it takes capital to run a business, and private equity companies can sell shares in the business to fund growth. Most businesses start as private and offer a foot in the door for investors as they build up the organization. Most commonly, private equity favors tech, biomedical, and pharmaceuticals but due to the lack of public information, it can be hard for investors to do their due diligence.
The Benefits
Financial data is private, and there is less pressure to show annual returns
Allows investors to focus on long-term prospects and opportunities
Steady valuation and low portfolio volatility for investors
The Disadvantages
Only available to accredited investors
Limited control and transparency for investors
Generally requires a higher cost investment and takes longer to see returns
Over the first several years of operating, profits are organized into a fund with the goal of growing fast and going public or selling for a higher value. Without the public pressure, investors can diversify their portfolios with private equity in developed markets like venture capital and leveraged buyouts.
In our case, we generate private equity for our investors through real estate projects. Once these projects are funded, they are then built (or renovated), maintained, and eventually sold for our investors’ long-term capital gain or profit. Long-term impacts of successful private investment include companies offering more (and better quality) jobs, as well as building a stronger local community.
What is Public Equity?
Public equity generally refers to the shares or ownership of a public company that is listed on the stock exchange like Google, Apple, or Tesla. Most organizations start to consider going public when they reach a value of around a billion dollars.
For investors, this is the opportunity to invest in a specific company through its Initial Public Offering (IPO) or later through trading shares on a public exchange such as the NASDAQ. However, it is important to remember that just because a brand has public interest, doesn’t mean it’s profitable. Proper vetting is required either way.
The Benefits
Public equity’s key benefit is its liquidity -- stocks are available for buying, selling, or trading daily
Often available as a lower-cost investment and open to the general public
Strong potential for high capital gains and considered a safer investment
The Disadvantages
Highly regulated by the SEC
Companies face public scrutiny
Strong pressure to deliver annual returns on investment
Because public equities are available to anyone, they are subject to strong rules and regulations enforced by the SEC and other government agencies. Public stocks are often bought and sold quickly, and the values of investments can fluctuate daily.
However, despite the ups and downs, public investments are viewed as a safer bet because the agreement is transparent, and you have complete control throughout the process.
The Key to a Strong Portfolio
Both private and public equity have their advantages in the world of investment, and both can be used to grow your investment portfolio. Our experts here at UD+P always recommend investors do their research and remember that a balanced and diversified portfolio is the key to long-term success.
The best part about working with a private investment firm like UD+P is that we’ll help you navigate the myriad of options while keeping your goals and values top of mind.
Interested in exploring your investment options? Contact our team for a FREE consultation today: CONTACT US