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  • The Axis team

Private markets v Public markets

For those unfamiliar with the term Private Equity, it refers to investments not traded on a public exchange (ASX, NYSE etc) or Market.

Some examples of private equity transactions are companies such as Arnott’s, Spotify, Nestle Skin Health, and more recently Sydney Airports.

The investment space of private markets is significantly larger than those in the listed space.

To illustrate this, globally there are over 95,000 private companies with annual revenues exceeding US $100m. The number of public companies with the same revenue is less than 10,000. This means that you are only getting exposure to < 10% of the largest companies worldwide. So, when you hear about ETF diversification, remember that you have excluded around 90% of the companies globally.

Moreover, over the past 20 years there has been a shift of value creation from public markets to private markets. If you were a private equity investor in say Facebook, you would have made a 9131x return and if you purchased Facebook at IPO, you would have made a 9x return.

Overall, on average private markets have outperformed public markets after fees over the last two decades as seen below:

To summarise, private equity is an attractive way to improve diversification, enhance returns and is worthy of consideration in most portfolios.

But like all investments, there are risks and private equity is a complex product, of which you should seek advice from a licensed professional before making any decisions.

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