Calculating the Trade-offs: Risk in Private Equity vs. Public Market

11 January 2024

In the dynamic world of investing, two distinct paths stand out: private equity and public markets. Each offers unique opportunities and challenges, tailored to meet the diverse needs of investors. But what exactly sets them apart? Let's delve into these differences to empower you in your investment journey.

Navigating the risks in public markets

Public markets, where stocks, bonds, and other assets are traded, attract investors with their accessibility and liquidity. But, like any investment, they can come with risks:

1. Market volatility

Market volatility in public markets is a significant concern for investors. Prices of securities can fluctuate based on market sentiments, corporate performance, and broader economic indicators. As a result, this volatility can impact your investment values, sometimes leading to substantial short-term losses, which can be unsettling for most investors.

2. Economic and geopolitical uncertainties

Economic trends and geopolitical events can also influence public markets. Factors such as changes in government policies, international conflicts, and global economic downturns can have far-reaching effects on the performance of these markets. Such external factors add layers of complexity and unpredictability, making your investments in public markets susceptible to risks beyond the control of individual investors.

Understanding private equity risks

On the contrary, private equity — involving investments in private companies — presents a different set of challenges:

1. Liquidity constraints and capital commitment

One of the primary concerns in private equity is the liquidity constraint. Investments in private companies aren’t as liquid as those in the public market. They often require a long-term commitment of capital, sometimes spanning several years. This lack of liquidity can be a significant hurdle, especially if you need to access your funds sooner than expected.

2. Market limitations

Private equity investments are often sector-specific or focused on particular companies, leading to a lack of diversification compared to public markets. This concentration increases the risk, as your investment's performance is reliant on the success of specific sectors or companies.

Balancing risks with potential rewards

In both private equity and public markets, the level of risk undertaken can significantly impact potential rewards. However, this is subject to portfolio risk and level of accessibility. Higher risk in private equity may lead to greater returns, especially in a well-managed portfolio.

Similarly, public market investments, while generally more liquid and accessible, may offer lower returns due to the inherent volatility and market exposure. That being said, you should consider the risk, reward, and reality of any investment to minimise the impact on your finances

StashAway’s role in navigating investment strategies

StashAway champions the management of investments via diversification, focusing on long-term growth potential. This approach is particularly relevant in private equity, where strategic decisions can significantly impact your returns. StashAway's expertise in asset-allocation and managing high-potential investments gives you an edge in this complex arena.

As part of its suite of services, StashAway Reserve provides a platform for investors to delve into private equity investing.The Private Equity and Venture Capital offering allows you to build a diversified portfolio of private market assets for as low as USD 50,000. You can confidently navigate the complex world of private equity, aiming for long-term returns.

Embracing investment opportunities with StashAway Reserve

Understanding the trade-offs between Singapore’s private equity and public markets is key to making informed investment decisions. Whether you're drawn to the liquidity of public markets or the high-return potential of private equity, aligning your strategy with your financial goals is essential. With StashAway, your investment journey goes beyond simple transactions; it becomes a strategic path to financial growth.


Share this
  • linkedin
  • facebook
  • twitter
  • email

Want more?

We thought you might.Join the hundreds of thousands of people who are taking control of their personal finances and investments with tips and market insights delivered straight to their inboxes.