Understanding The Difference Between Private And Public Assets

Do you invest money in the stock market?

Don’t worry, we are not here to sell you any marketing schemes!

However, you may have noticed that the digital world has opened hundreds of new investment opportunities. Take private assets, for example; they’re projected to reach over $14 trillion globally this year. Meanwhile, the public market continues to evolve at its own pace.

That’s why it’s important to understand both private and public assets and, even more so, the differences between them. Each comes with its risks and returns, shaping how investors approach their portfolios.

Before diving into those differences, let’s start by understanding what private assets really are.

Disclaimer:

While this article may provide you with a solid understanding of private and public assets, we're not your financial advisors. For investment advice, please consult someone who is legally certified to guide you on where to invest your money.
 

Understanding Private Assets

Private assets are a type of equity not traded on public markets. Unlike stocks or bonds listed on major exchanges, these assets operate independently of the daily market price fluctuations, and their value is determined through periodic valuation processes.

Private assets, including equity in private companies, private debt, and infrastructure projects, are typically managed by firms that specialize in illiquid investments. These assets require careful planning and oversight, making asset management a crucial part of long-term investment strategies.

Access to private assets is limited to major institutions, high-net-worth individuals, or family offices. Investing in such assets often requires a significant capital commitment over multiple years and may involve co-investments with other key players.
 

Understanding Public Assets

Public assets are public equity and are traded openly on public markets, such as stock exchanges. These include publicly listed stocks, government bonds, mutual funds, and other securities that can be bought or sold by both individuals and businesses. Their value is determined in real time through daily market activity.

Since public assets are widely accessible and highly liquid, investors can easily buy or sell them. This makes them suitable for every type of investor, from individuals to large institutions.

Regulatory bodies oversee public assets to ensure transparency and accountability. This transparency and wide market accessibility make investing in public assets one of the most conventional investment strategies.


Now that we have understood both private and public assets, let’s explore the difference between them.
 

The Difference Between Private And Public Assets

Private and public assets may have the same goal: generating high returns while undertaking as low a risk as possible. However, the journey to get there is very different. From investment access and liquidity to performance metrics and risk management, navigating both asset types requires a deeper understanding of what lies beneath the surface.

Let’s break it down.
 

What It Takes To Invest

Investing in both private and public assets has long been the domain of institutional investors. Private assets often have high entry points and far less liquidity than their public counterparts. These types of investments require patience, financial planning, and a clear understanding of the associated risks.

Analyzing private assets isn’t as straightforward either. Unlike public investments, that come with real-time data and standardized reporting, private assets require deeper analysis and niche expertise. Investors need to consider funding risks, legal structures, and complex cash flow models, adding layers of effort, often requiring higher upfront costs in terms of time and resources.

Despite the complexities, private assets can offer something public markets often can’t—access to unique growth opportunities. While private assets may require more effort, the potential payoff is well worth it.
 

When Technology Meets Investing

Despite the complexities of private asset analytics, advancements in technology have made these processes more accessible to both institutional and non-institutional investors. Today, specialized platforms streamline data analysis, risk evaluation, and performance tracking in ways that were once reserved for elite financial teams.

A common starting point in analyzing private assets involves selecting a public market proxy as a benchmark. While private assets lack real-time pricing, they often share exposure to the same fundamental risk factors as public investments. This enables the use of public benchmarks as a reference for understanding and modeling the behavior of less transparent private holdings.

By bridging these two investment worlds through shared risk profiles and smarter tools, technology is helping investors build more holistic, data-informed portfolios, even across very different asset types.
 

The Art Of Cash Flow Modeling

Cash flow modeling plays a crucial role in managing both private and public assets, but the complexity varies greatly. Public asset cash flows, such as dividends and bond interest, are generally predictable, frequent, and easier to plan around. In contrast, private markets operate on a delayed and less structured timeline, requiring more advanced modeling and foresight.

In private markets, Limited Partners (LPs) commit capital upfront, which General Partners (GPs) call upon overtime for investments. LPs then receive distributions over an extended period. This irregular cash flow cycle makes it essential for private investors to model capital calls, distributions, and net asset values, especially to avoid liquidity issues and maintain a stable portfolio allocation.

On a broader portfolio level, things become even more complex. With multiple private funds at different life stages, investors must juggle incoming distributions with outgoing commitments. A well-modeled cash flow strategy can help balance the mix, potentially creating a self-sustaining private asset allocation that doesn’t constantly rely on outside capital.

 

Getting Smarter With Portfolio Modeling

When you invest in private assets, the dip in returns is not your nightmare; it’s defaulting on capital calls. Failing to provide capital when it's due can have severe financial and reputational consequences. That’s why financial planning is crucial when developing a private asset strategy.

However, portfolios do not live in silos. Most investors balance private investments with public investments. This helps them make confident capital calls, absorb short-term shocks, and give investors room to operate strategically and tactically.

To effectively manage both private and public assets, investors need more than mental math; they need modern portfolio management tools that rely on data-driven simulations. Public assets can be modeled using factor-based forecasts, while private assets utilize fund-level cash flow projections. Together, these tools offer a comprehensive view of how a total portfolio might behave.
 

Measuring What Matters The Most

Measuring performance in private and public markets requires different lenses.

Private assets often rely on the Internal Rate of Return (IRR), a metric influenced by the timing and size of cash flows between LPs and GPs. Since these cash flows aren’t consistent, even slight differences in timing can significantly impact returns.

Public markets, on the other hand, use Time-Weighted Return (TWR), a method that strips out investor-specific cash flow timing. Whether you invest early, late, or trade frequently, TWR focuses purely on the performance of the asset itself, making it more standardized for benchmarking and reporting.

As IRR and TWR measure different things, comparing the performance of private and public assets is not as simple or transparent. Tools like Public Market Equivalents (PMEs) help bridge this gap by discounting private asset cash flows using public benchmarks. Still, these models often overlook the friction and risk premiums involved in private investing.

 

Final Words

Investing is more than just buying and selling. It’s about understanding the world of opportunities and strategies before you. Whether you’re investing in private assets with complex cash flows and aiming for long-term rewards, or navigating the more accessible and liquid public markets, both require careful financial planning and a clear approach.

By recognizing the differences between these two types of assets, you’re in a better position to build a strong and balanced portfolio. With the right knowledge, we hope you make smart and successful asset management decisions.

Happy investing!