Difference between Public Equity and Private Equity

Is private equity bigger than public equity? Public equity markets are much larger than private equity markets. According to SIFMA and McKinsey, the estimated value of global equity markets for 2021 is $124 trillion, while private markets are valued at $10 trillion.

Private equity has often outperform public equity over the long term, with studies showing that private equity has generated an average annual return of approximately 10-15% over the past few decades, whereas public equities have typically yielded lower returns, averaging around 7-10% during the same period. This data underscores the potential for higher returns associated with private equity investments.

So, should you prefer private or public equity while considering an investment? - Let’s see?

Liquidity

Public equity offers high liquidity and accessibility, while private equity provides opportunities for specialized investments and longer holding periods.

One of the most distinguishing features of public equity over private equity is the former's greater liquidity . Investments in public equity often take the form of stock in a company that is traded on a public stock market. Investors benefit from the high liquidity provided by the secondary market's ease of buying and selling these shares. However, private equity investments are inherently hard to sell. When investors put up their money for a longer period, anywhere from several years to a decade, it might be difficult to get out of the investment before the conclusion of the holding period.

Investors

Since stocks in publicly listed firms are available to the general public and may be acquired by anybody, the number of people who invest in them is very high. Private equity investments, on the other hand, are often only available to "accredited investors " or those who have demonstrated substantial levels of personal or institutional wealth. Unlike public offerings, private equity transactions only attract a small group of accredited investors.

Privacy and Regulation

The lack of public disclosure requirements for private equity deals provides significant anonymity. In contrast, the Securities and Exchange Commission (SEC) in the United States imposes strict restrictions and disclosure requirements on publicly listed corporations. These rules are put in place to protect investors by providing them with relevant data about a company's financial standing and performance.

Private equity transactions offer a high degree of privacy, as there is no obligation to disclose information publicly.

Pressure and Focus

There is less pressure from the public markets to provide returns quickly so that private equity investments can be made with an eye toward the long haul. The pressure on publicly listed corporations to fulfill quarterly financial objectives and investor expectations is constant.

Trading Mechanism

The methods for trading public and private equities are vastly different. Assets are exchanged between small investors in a private equity transaction. The board of directors must consent before these assets can be sold to the public. On the other hand, shares traded on public stock exchanges have their prices set by market forces.?

Strike Price Calculation

Regarding stock options , the strike price is calculated differently between public and private markets. In private equity, the options' strike price is determined by the fair market value of the company's shares as determined by a 409A valuation . The market sets the striking price of a publicly traded stock and is dependent on the current price of the underlying security.

Take the Right Decision With Eqvista!

Both public and private equity have been defined, and its fundamentals and key distinctions have been outlined. The answer to the question, should you look into private or public equity depends heavily on the specifics of your company. Investing in the correct type of equities requires careful consideration, analysis, and preparation. When it comes to handling the equity and shares of your business, Eqvista is here to help. If you want to learn more, Get in touch with us right away .