Public vs. Private Equity

In Short

All equity financing involves purchasing ownership of a company. The only difference is where the company is offered for sale. 

Public Equity

This is the area that I focus in. It is companies (stocks) that are offered for sale on the public exchanges such as NASDAQ and NYSE. All the information about those companies are publically available. Also, any brokerage company can buy a public equity (stock). For example: Let’s say you are considering buying a share of company A. You can look up all past financial statements, the share price, etc. Now I think those things are of extremely limited value, but you still have access to that information. If you like the company you can have Schwab buy it for you. If you want to sell it you can, at any time, sell it within a few seconds. You can get an exact price quote at any time. There are no restriction on who can or cannot purchase stocks.

Private Equity

These are companies that are not offered through a public exchange but rather the transaction is organized personally. The buyer meets the seller in person to come to an agreement. The company’s information is not publically available. For example: Person A starts a company producing widgets. You meet person A in person and offer them $50,000 to buy 50% of their company. They agree, you pay them that money and you now own half the company.

Disadvantages of Private Equity

Now selling that 50% to get money is difficult. Person A might not have enough liquid cash to do it and no one else might be interested enough in the company. With a public equity, there are so many buyers and sellers that you can always cash out of your position. With a private equity there is significant risk that you won’t be able to. One thing that limits that number of people you can theoretically sell to is that there are regulations in place in regards to who can purchase private equity. All investors must be accredited. That means they have a net worth (minus the value of their principle residence) greater than $1 million and/or they make over $200,000 a year (over $300,000 if married).


Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. If you would like to submit a post to my blog, please contact me.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

Learn About My Business

Logo


Leave a Reply

Your email address will not be published. Required fields are marked *