Private vs Public Market Investing: Key Differences

Investing in private and public markets offers distinct opportunities and challenges. Here's what you need to know:

• Public Markets: Open to everyone, highly liquid, transparent, and regulated. Investments include stocks, ETFs, and bonds. Returns are lower but more predictable (e.g., S&P 500: ~7.3% annually over 25 years).
• Private Markets: Restricted to accredited investors, less liquid, and less regulated. Investments include private equity, venture capital, and real estate. Higher potential returns (e.g., ~12.5% above Treasury bills) but come with higher risks and longer holding periods.

Quick Comparison

Investors should weigh their risk tolerance, timeline, and financial goals when choosing between these markets. A balanced portfolio can benefit from both.

Who Can Invest: Requirements and Access

Public Market Access

Investing in public markets is open to everyone. Whether you're a seasoned investor or just starting out, you can buy shares in companies listed on major exchanges like the NYSE or NASDAQ. This open approach has long been a hallmark of public markets, allowing a wide range of people to participate in corporate growth and wealth-building.

That said, the number of publicly traded companies has dropped significantly - from 8,000 in 2000 to about 3,700 today . This shift has brought more attention to the ease of access in public markets, with lower minimum investments and flexible entry and exit points. On the flip side, private markets have more stringent entry rules.

Private Market Restrictions

Private markets come with stricter rules, primarily to shield less experienced investors. While private market assets have grown by 170% over the last decade , they still require participants to meet specific qualifications. The main hurdle? Becoming an accredited investor, which means meeting at least one of the following criteria:

"Successful private placement investors will often invest millions of dollars across hundreds of companies to have a hope of finding one which becomes successful. They also pay for their own due diligence by hiring accountants, lawyers, financial advisors, and other professionals to pore over the company's documents and plans before they invest." - Joshua Troesh, Investment Advisor

Some private investments are even more exclusive, requiring investors to qualify as qualified purchasers. This means:

• Having an individual or family investment portfolio worth over $5 million
• Companies needing a portfolio of more than $25 million

With companies staying private twice as long as they did in 1980 , regulatory changes have emerged. For instance, the SEC's Regulation A now allows non-accredited investors to participate in private markets .

High-net-worth individuals are increasingly drawn to private investments. Their allocation to alternative assets climbed from 7.7% in 2020 to 9.1% by late 2022 . These different access requirements influence how investors approach public and private markets.

Main Differences Between Markets

Market Liquidity Comparison

Liquidity is a key factor that separates public and private markets. Public markets allow for near-instant trading, while private investments often require holding periods of several years. Public markets also offer massive scale - valued at $124 trillion in 2021 - compared to the $10 trillion size of private markets . By 2026, private market assets are expected to grow to $24 trillion, according to Preqin .

Besides liquidity, these markets also differ in transparency and how prices are determined.

Information and Price Discovery

Transparency and price discovery are other major differences between public and private markets. Public companies are required to provide frequent financial reports, ensuring regular updates and transparent pricing through constant market activity. On the other hand, private market valuations are updated less frequently - typically only during funding rounds, which may occur every 18 months or longer . This makes assessing valuations more challenging. As PIMCO explains:

"When investing in private markets, investors give up near-term liquidity in an effort to capture a liquidity premium over a longer horizon"

The private market's size is often underestimated. While fewer than 3,000 public companies in the U.S. generate more than $100 million in revenue, over 19,000 private companies surpass this benchmark .

Risk and Return Differences

Risk and return profiles also vary significantly between public and private markets. Historically, private market investments have delivered higher returns. Over the last 25 years, private equity funds have achieved an average annual return of 13.1%, compared to the S&P 500's 8.6% during the same period . However, private equity returns can be volatile and sometimes underperform public indices. For instance, in 2023, the S&P 500 grew by about 25%, while private equity returns averaged around 9% .

Private market investments often move independently of public market trends, offering potential diversification benefits. Although less frequent valuations help reduce daily volatility, these investments still carry significant risks.

Rules and Reporting Requirements

Public Market Rules

The SEC enforces strict regulations for public companies. These businesses are required to file annual (10-K), quarterly (10-Q), and current (8-K) reports to keep investors informed. Oversight became even stricter after major legislative changes, such as the Sarbanes-Oxley Act of 2002. As President Bush described it:

"The most far reaching reforms of American business practices since the time of Franklin Delano Roosevelt"

To go public, companies must meet several criteria, including having a minimum level of assets, registering with the SEC (typically required for companies with over $10 million in assets), adhering to exchange standards, and providing ongoing financial disclosures.

While public markets face these rigorous reporting requirements, private markets follow a different set of evolving regulations.

Private Market Oversight

In August 2023, the SEC introduced new Private Fund Adviser Rules. These rules mandate annual audits, detailed disclosures on fees and expenses, and improved reporting for secondary transactions. Private funds managing at least $150 million must file Form PF either quarterly or annually .

SEC Chair Gary Gensler highlighted the importance of oversight:

"Private funds today are ever more interconnected with our broader capital markets. They also nearly have tripled in size in the last decade. This makes visibility into these funds ever more important"

The number of private funds grew from 43,428 to 47,443 as of Q2 2023 . Advisers managing funds over $1.5 billion must report stress events within 72 hours and provide detailed information about clawbacks, investment strategies, borrowing, annual compliance reviews, and privacy policies.

Unlike public companies, private businesses are not required to produce standardized financial reports or maintain continuous market disclosure. However, they must still comply with federal anti-fraud laws and meet securities exemption requirements. These differing rules highlight the unique challenges and considerations investors face when choosing between public and private markets.

Understanding these distinctions is key for investors evaluating liquidity, transparency, and risk in each market.

Public vs. Private Markets: What's the Difference?

Investment Methods for Each Market

Let's dive into how you can approach investing in public and private markets, building on earlier discussions about rules and reporting.

Public Market Options

Public markets operate through regulated exchanges and brokerages, offering a range of liquid and accessible investment options. Popular choices include stocks, bonds, mutual funds, and ETFs .

"An investment vehicle is an instrument, product, or container that houses a particular investment strategy that allows investors to earn a positive return through income and capital gains."

Modern platforms have made public market investing more accessible, with features like commission-free trading and fractional shares. Many brokerages also provide tools for portfolio management, research, and even automated investing.

While public markets offer liquidity and ease of access, private markets come with their own set of requirements and opportunities.

Private Market Methods

Private market investing typically requires a higher financial commitment and involves different approaches. Platforms like EquityZen, for example, allow entry points starting at $10,000 as of early 2025 . However, purchasing private company stock often takes 6–10 weeks to finalize.

Here are some common private market investment options:

• Direct company investments: Gain pre-IPO access to companies like SpaceX, which was valued at $350 billion in early 2025 .
• Private equity funds: These funds often charge management fees of 1.5–2% and performance fees around 20% .
• Secondary marketplaces: Platforms like Hiive provide access to private investments, typically starting at $25,000 .
• Co-investment opportunities: Invest alongside institutional investors in specific deals.

Private market assets reached $13.1 trillion in 2023, marking a 12% increase from the previous year . This growth is tied to the trend of companies staying private longer. For instance, Hamilton Lane noted that the median age of companies at IPO has doubled from 6 years in 1980 to 12 years in 2022 .

Keep in mind, private market investments are generally less liquid and come with higher risks compared to public markets. Choosing the right investment method depends on your overall strategy, as each market offers distinct advantages and challenges.

Making Your Investment Choice

Key Differences Between Public and Private Markets

Over the past three decades, the number of public companies has dropped by 50%, while private companies have grown by 43% . This shift has opened up distinct opportunities in both investment spaces.

These differences highlight the need for a tailored approach when deciding where to allocate your funds.

Choosing the Right Investment Strategy

To make the best investment decisions, align your choices with your financial goals, risk tolerance, and investment timeline.

"Considering both your willingness and your financial ability to take on risk is the best way to make asset allocation choices that work for you." - Anil Suri, portfolio construction and investment analytics executive, Chief Investment Office, Merrill and Bank of America Private Bank

Here’s a quick breakdown of what each market offers:

• Public Markets: Accessible to most investors, public markets offer transparency and the ability to trade assets quickly. This makes them a good fit for those seeking flexibility and lower risk.
• Private Markets: These can deliver higher returns and diversification benefits but require a longer commitment (2-7 years) and are only available to accredited investors. They often demand higher capital and carry more risk.

When deciding, consider these factors:

• Timeline: Private investments require a longer commitment, typically between 2 to 7 years.
• Risk Tolerance: Evaluate your ability and willingness to handle higher-risk investments.
• Capital Requirements: Private markets often have higher minimum investment thresholds.
• Diversification: Adding private investments can reduce reliance on public market performance .

Combining both public and private investments in your portfolio can help balance growth potential and liquidity. As markets change, a mix of these assets may provide better risk-adjusted returns while keeping your financial goals on track.