Public vs Private Markets - An overview

An overview of the public and private markets for beginners.

Summary: Public and private markets are two sides of the same coin. They are both marketplaces that facilitate transactions between willing buyers and sellers. The key difference lies in the participants - public markets are open to the public, including individuals and corporations. In contrast, private markets are private and traditionally only open to selected entities. The roles of buyers and sellers differ between situations, but in general, one party looks to raise capital while the other looks to generate income from its capital.

Public Markets: Financial markets where securities like stocks and bonds are traded publicly on exchanges. This marketplace is accessible and open to the general public and institutional investors. Companies that look to raise capital from issuing shares and bonds can list them on exchanges, while investors invest their capital in these securities on the exchange to generate income. As this marketplace allows "public" access to individuals and corporations, securities are highly liquid, as any entity can buy or sell a security relatively quickly during market hours. 

Characteristics include: 

• High transparency due to listing regulations and continuous disclosure requirements
• Valuation driven by demand and supply in the market
• Moderate returns
• Diversification benefits from various public securities

Private Markets: Similar to the public markets, except this marketplace is traditionally open only to larger, institutional and professional investors like hedge funds, sovereign wealth funds, and family offices. The reason is that investments in the private markets typically command a larger minimum ticket size, hence being out of reach for regular individuals. The private market (private equity and private credit) has been growing rapidly in the past few years, and with greater access for individuals through new fund structures and platforms, this will be an increasingly important topic.

Characteristics include: 

• Not as transparent as there are fewer disclosure requirements and information is typically shared directly with investors
• Valuation estimated using models
• Higher returns due to liquidity premium and higher risk
• Some diversification benefits
• Long investment horizon as these investments are typically locked for long periods
• Presence of active management investors