Exploring the Dynamics of Private vs. Public Markets: Choosing Your Ideal Investment Strategy
Written and contributed by QIP's Marketing Team
Making investment decisions in the dynamic financial landscape involves understanding the unique characteristics of private and public markets. In this blog feature, we delve into the details of these markets and their core differences, to help you tailor your investment strategy and align with your financial goals & risk tolerance.
Part 1: Public Markets
Public markets, as highlighted in McKinsey’s Private Markets Annual Review, stand as a cornerstone for investors, offering a range of advantages:
a. Liquidity: S&P Global notes that public markets boast high liquidity, providing investors with the flexibility to buy and sell assets effortlessly. This liquidity is particularly valuable for those who seek quick access to their investments or prefer a short-term investment opportunity.
b. Transparency and Regulation: McKinsey emphasizes the transparency and rigorous regulation characterizing public markets. Regular disclosure of financial information by publicly traded companies ensures that investors can make informed decisions based on accurate and up-to-date data.
c. Lower Barriers to Entry: Public markets offer a more accessible and often lower-cost investment option, open to the general public. This accessibility provides a wide range of investors with opportunities to participate in the stock market. The relatively low entry barriers make public markets available to both individual and retail investors.
d. Market Volatility: WealthBriefing sheds light on the cyclical nature of public markets and it’s susceptibility to significant volatility and macroeconomic uncertainty. While prices can fluctuate frequently, this volatility presents both risks as well as opportunities for investors.p
Part 2: Private Markets
a. Superior Returns and an Attractive Risk-Return Profile: Considering private markets becomes particularly enticing due to the potential for superior returns compared to public markets. Over time, private equity has demonstrated returns comparable to Emerging Market Equities and surpassing those of all other traditional asset classes. The combination of relatively low volatility and impressive returns contributes to an appealing risk-return profile.
b. Total Assets under Management (AUM) Growth: Total private markets AUM reached an impressive $11.7 trillion as of June 30, 2022, growing at an annual rate of nearly 20 percent since 2017. The second quarter of 2022 saw dry powder exceed $3 trillion, marking the eighth consecutive year of growth. In private equity, inventory spiked, reaching the highest ratio since 2013.
c. Resilience of Private Assets:
Investors are drawn to private assets, such as real estate investment, due to their non-cyclical nature and lower volatility. The illiquidity and absence of secondary market pricing contribute to this appeal, making private assets an attractive option, especially during times of market dislocation when financing from direct lenders in private credit becomes a reliable alternative.
d. Integration into Financial Markets: Private markets, including private equity in Singapore, have become integral to global financial markets and the real economy. The surge in global private equity- and venture capital-backed M&A transactions in 2021, totaling over $600 billion, underscores their increasing influence. Private equity and private debt have formed a symbiotic relationship, leading to a convergence between broadly syndicated and direct-lending markets.
e. Performance Outpacing Public Equity: JP Morgan’s 2021 analysis found that the private equity industry continues to outperform public equity. Notably, private equity’s performance metrics consistently showcase outperformance against benchmark indices such as the S&P 500, S&P 600, and the Russell 2000.
Choosing the Right Investment Strategy
While public markets offer certain advantages in liquidity and accessibility, the dynamic landscape of private markets, coupled with their proven track record of growth and resilience, makes them an appealing option for those seeking long-term stability and potentially higher returns.
Diversification and due diligence remain crucial considerations. Our team of experienced professionals is ready to guide you through unique access and co-investment opportunities in institutional-grade real estate assets.