In recent years, private equity has moved from the shadows of finance into the mainstream conversation. But what exactly is private equity, and how does it compare to the more familiar world of public markets? Private equity veteran Frédéric Stolar offers an insider’s view of the industry, demystifying how it works and why it continues to attract long-term investors.
Understanding Private Equity
Private equity refers to the ownership of companies that are not listed on public stock exchanges. Unlike public equity—where shares are traded daily on platforms like the NYSE or NASDAQ—private equity involves investing in private businesses, often through specialized funds managed by professionals.
Stolar, who has spent over 35 years in the industry with firms like Apax Partners, Warburg Pincus, and Sagard, explains that private equity is not just about injecting capital. “It’s about working alongside management teams to grow businesses. That means helping to hire key personnel, expand operations, digitize processes, or even acquire competitors,” he notes.
The Four Faces of Private Equity
Private equity isn’t a monolith. It spans several investment strategies depending on a company’s stage of development:
- Venture Capital targets startups with innovative ideas but little revenue.
- Growth Equity focuses on expanding mid-sized firms with proven models.
- Leveraged Buyouts (LBOs) acquire mature, cash-generating businesses using debt.
- Turnaround or Distressed Equity invests in struggling companies in need of restructuring.
Each of these strategies involves active ownership and a long-term commitment, typically over 5 to 10 years.
Who Invests—and Why?
Historically, private equity has been the domain of institutional investors such as pension funds, insurance companies, and sovereign wealth funds. These players are drawn to private equity’s potential for higher returns. Over the past two decades, average private equity funds have delivered 10–12% annual returns, compared to 5–7% in public markets. Top-performing funds have generated returns of 20% or more.
However, this performance comes at a cost: illiquidity. Investors must commit capital for extended periods, with no guarantee of early exit. “It often takes five years just to deploy the capital and another five to realize gains,” Stolar says.
Public Markets: Liquidity and Accessibility
By contrast, public markets offer unmatched liquidity and ease of access. Anyone with a brokerage account can buy or sell shares in seconds. Entry barriers are low—thanks to fractional shares and ETFs, investors can start with as little as $1. Public companies also offer transparency, with quarterly earnings reports and daily pricing.
But the public markets’ short-term focus can clash with business realities. “Public companies often manage to the next quarter,” Stolar notes. “Private equity operates on a business plan horizon—typically 5 to 7 years—which aligns more closely with how companies actually grow.”
Comparing the Two: A Quick Overview
| Feature | Public Equity | Private Equity |
| Liquidity | Daily tradability | Long-term lock-up (7–10 years) |
| Access | Open to all investors | Traditionally for institutions and HNWIs |
| Fees | Low (0.03%–0.5%) | High (“2 and 20” model) |
| Returns | 7–10% historical avg. | 10–20%+ for top funds |
| Involvement | Passive investing | Active ownership |
| Diversification | Easy via ETFs | Harder without fund-of-funds |
Is Private Equity Becoming More Accessible?
While private equity has historically been out of reach for individual investors, fintech platforms and listed private equity vehicles are beginning to change that. Retail-accessible funds now allow smaller investors to gain exposure to private markets—albeit with some limitations.
The Bottom Line
Private equity and public markets each serve different investor needs. Public equity offers flexibility, transparency, and low fees—ideal for most retail investors. Private equity offers potentially higher returns and deeper involvement in value creation but requires patience, capital, and trust in the fund manager’s expertise.
For investors, understanding these differences is key to building a well-balanced portfolio that aligns with both risk tolerance and financial goals.
Past performance is not a reliable indicator of future returns.
