Difference between Private and Public Equity

Private Equity

Private equity is defined as the total assets or security that represents the ownership of an individual or organisation in a private company. The financial information about the stocks and shares that are a part of the ownership structure is not disclosed to the general public. The actual value of those shares is subject to speculation. This kind of investment option helps the investors to focus on the long term prospects of the business. It is also one of the main reasons why they are less likely to get regulated by the organisations or held accountable for their investment.

The private equity industry mostly comprises of individuals with huge capital or organisations that wish to purchase shares in private firms. The investors can buy, sell or trade their shares in any way they want among the shareholders after getting the necessary validation from the founder of the company. Any individual or organisation that wishes to invest in a private equity firm can do so through the following two means:

  • Venture Capital – The venture capital route allows the investors to put their money in the start-ups or companies which have a huge potential to do well in the industry.
  • Leverage buyout – Leverage buyout is a method of investing in a private equity firm that allows the individual or organisation to purchase the shares of the target firms or buy all of them together at one go.

Public Equity

Public equity is a method of investment that allows individuals and organisations to invest in the shares of a public company and become part owners as well. The public equity industry is regulated by governmental organisations that have to publish their financial information related to their stocks and assets on a regular basis for compliance purposes. It means that the finances, revenue and other details about the functioning of a company are visible to the general public.

The public equity investors are also involved in holding annual meetings where they do a thorough evaluation of the company’s performance and suggest corrective measures in line with its long term outlook. These evaluations are also conducted publicly so that the stakeholders can participate freely in these discussions. The shares of these public companies can be purchased, sold or traded in the securities market through tools like the Initial Public Offering (IPO). As the shares of these companies can be sold to the general public, their stocks are known as liquid assets. This is because it helps the investors to sell them off whenever they need cash. However, these securities are not without their risks. In adverse political situations or during times of economic instability, the stock value of these shares can get affected negatively as well. It can also end up putting the companies at risk.

Difference between Private and Public Equity

Both Private and Public Equity help individuals and organisations invest in companies and get a share of the profits. They are an extremely important source of capital for the companies as well and help them survive in the long term. However, there are several areas of difference between private and public equity, which we must discuss below to understand the topic better:

Private Equity

Public Equity

Definition

Private equity is defined as the shares and stocks owned by individuals or organisations in a private company.

Public equity is defined as the shares and stocks owned by individuals or organisations in a public company.

Privacy of Information

Private equity investors have no obligation to publish the financial information about their stocks to the general public.

Public equity investors have an obligation to publish the financial information about their stocks to the general public.

Pressure

The private equity investors have the leverage to work on the long term prospects because there is no pressure on them from the public to show adequate return on their investments.

The public equity investors have almost no leverage to work on the long term prospects because there is considerable pressure on them from the public to show adequate return on their investments.

Target

The private equity firms normally focus on targeting individuals or organisations with high capital reserves because of the nature of investment required in this method of financial investments.

The public equity firms normally focus on targeting the general public because of the nature of investment required in this method of financial investments.

Regulation

The private equity sector has a relatively easier regulatory framework because they do not have to disclose specifics of their investment policies to the government or the general public.

The public equity sector has a relatively tougher regulatory framework because they have to disclose specifics of their investment policies to the government or the general public.

Trading of assets

In case of private equity, the investors have the freedom to trade assets among each other or the public but only after getting the consent of the founder.

In case of public equity, the investors have the freedom to trade assets among each other or the public without the need for getting the consent of the founder.

Conclusion

Both private and public equity are extremely important for any company to generate capital for their long and short term needs. Although there are a number of differences between the two, companies prefer to use both these modes to finance their operations along with ensuring the long term survival of their organisation.

Frequently Asked Questions

At what stage do private equity firms typically invest in a company?

The private equity firms typically invest in a company during its growth stage.

At what stage does public equity firms typically invest in a company?

The public equity firms typically invest in a company when they are established and are looking to go public.

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