Summary: Public Vs. Private Equity

Read the summary and the most important questions on Public vs. Private Equity

• 1 Introduction

• What is important when comparing capital raised?

  Returns
  Who provides it
  How much

• 2 Public Equity

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• What do many executives believe about being public?

  It provides financial flexibility and credibility in eyes customers, suppliers & employees

• What are the disadvantages of raising equity in public market?

  Can be high costs
  Intermediaries: auditors, atterneys etc. 3-5%
  Stock price can drop 3 - 10%
    - Lose a lot of $$ compared to what you get in offerering

• Why stock price drop when raising equity in public market?

  Investors think:
  Raise E, not debt: management could think firm overvalued
  Firm may really need funds

• Explain what happens when there is a discount on equity

  Negative spiral down: Inv. think should be even lower

• Paradox public capital

  Most available when not needed (good times)
  Not available when needed (bad times)

• 3 Private Equity

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• What is private equity compensation different from public equity compensation?

  Compensation tied directly to success investments

• Compensation public equity

  Fixed fee of AUM
  Growing asset base = more income
  Less sensitive to performance than PE

• Which kind of asset class is public equity but looks like PE?

  Hedge funds look like PE

• 4 Value adding investors

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• Differences in predicting returns of PE and public equity

  PE can show outperformance in long run due to better managment
  Past = predictor future