What is Private Equity?
Private equity is an investment in companies not listed on a public stock exchange. Private equity investors provide capital to these companies in exchange for ownership stakes, to improve the company’s operations and eventually sell the investment for a profit. Private equity firms target undervalued or underperforming companies.
Private equity firms can take several forms, including venture capital firms, which invest in early-stage companies, and buyout firms, which focus on acquiring controlling stakes in established companies. Private equity firms may also specialize in specific industries or types of investments.
Private equity investments are made to realize a financial return through an initial public offering (IPO) or a sale to another company. Private equity firms hold their investments for several years, during which time they may work to improve the company’s operations, reduce debt, or acquire other businesses to drive growth.
What is a Public Equity?
Public equity refers to the ownership of stocks in companies listed on a public stock exchange, such as the New York Stock Exchange or the NASDAQ. When a corporation goes public, it sells shares of its stock to the general public. Individual individuals and institutional investors, such as mutual funds or pension funds, can buy and sell these shares.
There are several advantages to investing in public equity. One of the main advantages is that public companies are required to disclose financial and other information regularly, which allows investors to make informed decisions about the risks and potential returns of their investments. Public equity also provides investors with liquidity, as the shares can be easily bought and sold.
However, public equity also carries risks. The value of a public equity investment can fluctuate significantly based on various factors, including market conditions, company performance, and macroeconomic events. Public equity investments also carry the risk of dilution, as companies may issue additional shares of stock over time, which can dilute the value of an individual investor’s holdings.
Difference Between Private Equity and Public Equity
- Private equity refers to investment in companies that are not listed on a public stock exchange, whereas public equity refers to the ownership of stocks in companies that are listed on a public stock exchange.
- Private equity investors provide capital to a company in exchange for ownership stakes, whereas public equity investors own shares of a company’s stock.
- Private equity investors are not required to disclose financial and other information to the public regularly, whereas public companies are required to do so.
- Private equity investments are not as liquid as public equity investments, whereas public equity investments have more liquidity.
- Private equity can be a high-risk, high-reward investment, whereas public equity carries lesser risks.
Comparison Between Private Equity and Public Equity
| Parameters of Comparison | Private Equity | Public Equity |
| Listing | Investment in Non-listed Companies | Investment in Companies Listed in Public Stock Exchange |
| Ownership | Compromised | Retained |
| Transparency | Not Required | Required |
| Liquidity | Less | More |
| Risk | More | Low |