The investment revolution: your guide to mastering the public and private markets

Investing has always been deemed a crucial component of building wealth and now, more people are investing than ever before. About 15% of current retail investors (a.k.a. everyday investors) began their investment journey in 2020. With the rise of platforms like Wealthsimple and Robinhood, app-based self-directed investing has changed the game for people by democratizing access to stocks and other securities with features such as fractional trading and commission-free transactions

However, amidst the hype surrounding public market investments, many retail investors often overlook the private markets. 

We want to change that. 

The opportunity within the private markets has become more accessible. In the United States, there are six times as many private companies with revenue over $100MM compared to public ones and with firms opting to remain private for longer, the private markets are becoming a more desirable investment option. Typically, investment experts such as Sam Sivarajan, head of investments at Manulife Private Wealth, state that investments in private companies may comprise roughly 10% of an investor's portfolio.

Consider this: If you had invested $1 in 2018, by the first quarter of this year, it would have grown to $1.45 in public equities, $2.30 in private equities, $1.41 in private credit, and $1.60 in private real estate, according to Hamilton Lane Advisors LLC data. Impressive, right? But what exactly sets private market investing apart, and how does the process differ?

Let's delve into the details.

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The public markets are efficient, quick, and and exciting way to start your wealth-building journey

In the public markets, investing typically entails creating an account, completing a risk assessment questionnaire to determine your investment objectives, risk tolerance, and time horizon, and transferring funds to initiate trades. Investors then buy and sell stocks on a public stock exchange such as the Toronto Stock Exchange (TSX). Platforms like Wealthsimple and Robinhood offer users access to a diverse range of investment options, including stocks, exchange-traded funds (ETFs), and mutual funds. This whole process usually takes a matter of minutes before the shares you purchase are safely in your portfolio where you can track the performance through the platform’s dashboard. Keep in mind that the public markets fluctuate far more on a day-to-day basis than the private markets do.

A couple of the unique public market highlights:

• Liquidity: Publicly traded securities can be bought and sold quickly and easily during market hours, allowing investors to access their funds when needed.
• Transparency: Public companies are required to disclose financial information and adhere to regulatory standards, providing investors with transparency and insight into the performance of their investments.
• Diversification: Public market investors can easily diversify their portfolios by investing in a broad range of companies across different industries and sectors.

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The private markets are an opportunity to think long-term, align your interests, and be privy to new, innovative businesses

Now, onto the private markets. Private market investing involves participating in privately held companies that are not listed on public stock exchanges. Unlike public market investments, which are readily accessible through brokerage accounts, private market opportunities require investors to engage with specialized platforms. Platforms like FrontFundr allow all Canadians to access private market opportunities and invest directly in early-stage startups and growth companies. 

Here, investors begin the investment process with account creation and selecting deals of interest. Similarly to the public markets, there is some information available online and in the offering document put together as part of our team’s due diligence process but you would still typically do your own research. 

One significant distinction between public and private market investing lies in the investment process itself. While public market transactions are executed swiftly through online platforms, private market investments often involve a more comprehensive investment process. On platforms like FrontFundr, investors may encounter additional steps, such as suitability confirmation and  'know-your-client' questionnaires, ensuring compliance with securities regulations. Additionally, once you’ve signed investment documents, you wait until the company has officially closed the campaign and accepted the investments before you become a shareholder and can monitor the company's performance through the FrontFundr dashboard.

A couple of unique private market highlights: 

• Potential for High Returns: Private market investments have the potential to generate high returns, especially if the companies achieve significant growth or are acquired by larger firms.
• Access to Early-Stage Opportunities: Private market investing provides investors with the opportunity to support early-stage companies and participate in the growth of innovative businesses that may not yet be available to the public.
• Long-Term Focus: Private equity investors typically have a longer investment horizon compared to public equity investors. Since they are illiquid and not subject to constant market speculation and reactionary behaviors from public market investors, private investments may shield investors from short-term market volatility and allow for the ability to support the company's growth strategies.

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So, what do you invest in? Well really, it all depends! 

They each have their pros and cons and the right approach depends on your financial situation and investment objectives.  By understanding the differences between these two investment avenues and carefully evaluating your options, you can make informed decisions to help you achieve your long-term financial goals. 

Whether you choose to invest in the public markets or explore private market opportunities with platforms like FrontFundr, the key is to stay informed, diversify your portfolio, and invest wisely.