What Are The Pros And Cons Of Investing In The Public Markets Versus Private Markets For High-Networth Individuals (HNWI) Who Have Access To Private Markets? What Is Your Preference As A HNWI?

 Being an accredited investor who has access to both the private and public markets, I personally prefer Private Market Investments over public market ones. Just like the public capital markets, investing in private markets has its own set of pros and cons. If you are an HNWI and are confused about which financial markets suit you the best, here is a short comparison between the two -

1) It  has lesser price fluctuations

The valuation of private market financial assets is not affected by the price movements in the public markets. This reduces the volatility of the private markets and thus reduces the risk investors are exposed to. Also, private market investments are generally long term and arbitraging is not very profitable or desirable with such financial assets and thus their valuation does not fluctuate as often as their public counterparts. If you are an experienced investor in the public markets, you might be familiar with the concept of grouping. Wherein, if one industry is in a downtrend, the valuation of its comprising companies also rallies downwards regardless of the company-specific activities. However, this phenomenon is not seen in the private markets due to which the valuation of a private market asset does not fluctuate as much as its public counterpart.

2) It can offer you higher returns

Private markets have been known to provide higher returns when compared to the public capital markets. For instance, the private markets gave an average return of 14.2% annually in the past 10 years while their public counterparts could only provide back 10% on an average annually in the same timeframe. It is also found that investing in new and upcoming companies provided higher returns than the popular S&P500 when compared over the same time duration.

3) It helps you diversify your portfolio efficiently

Investing in the private markets helps you include a whole different asset class to your investment portfolio. Since these private market assets are less volatile, offer higher returns, and are suitable for long-term investments, as an investor, a private markets investment gives you all the tools you need to mitigate your risks and increase the profit potential of your investment portfolio.

I hope this article helps you understand the pros and cons of investing in the private capital markets as compared to those of the public capital markets.


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