Public markets have had a banner few years. The stock market is on track for two consecutive years of over 20% gains, an incredibly rare occurrence.*
But publicly traded assets aren’t the only class benefiting from the economy’s ongoing resilience — and they may not be the best way for investors to capitalize on it, either.
“The stock market” generally refers to the public secondary market, where shares of companies are bought and sold after their initial public offering (IPO) on regulated exchanges like the Nas-daq or New York Stock Exchange. Public markets are the most common place to trade securities. Public companies are required todisclose financial information regularly, and exchanges enable a liquid market for investors to buy and sell these assets at market prices.But stock isn’t only issued for public companies. A startup’s shares, for example, will typically be distributed among founders, venture capital (VC) or private equity (PE) investors, and often employees.Those shares can’t be bought and sold by the general public. But stock in pre-IPO companies can still be traded on the private secondary market, which is comprised of trades involving as-sets not traded on public exchanges. Transactions like VC investments, PE deals, and buying and selling shares of privately owned companies typically occur via private negotiations or specialized platforms.**
The norm for startups has historically been to raise money and go public as fast as possible. That’s changed in recent years. With venture capital and private equity more readily available, startups today are staying private for longer.Some companies may prefer this arrangement, as it allows them to maintain control and financial privacy. For employees and shareholders, though, it can mean fewer liquidity events, effectively making wealth less accessible. And for investors, it may mean less exposure to potential growth stocks and sectors.
That’s largely why the role of private markets in global finance is growing. The private secondary market may be fundamentally less liquid or transparent than public markets. But it can also unlock wealth for shareholders of pre-IPO companies, expose investors to unique growth opportunities, and provide portfolios with a sharp competitive edge.
Private markets aren’t subject to the same regulatory oversight as the public markets. But that doesn’t mean they have no guardrails. In the U.S., most private secondary transactions are restricted to accredited investors.This, coupled with the secondary market’s relative lack of transparency and liquidity, tends to lead to fewer trades and participants, meaning it is harder to match supply and demand in pri-vate markets.Consequently, it can be tricky to pick and stick to a set entry or exit point in these transactions. Finding a buyer or seller for a private equity stake or shares in a start-up may take some time, and prices can fluctuate based on little information.Fortunately, marketplaces tailor-made for trading shares of pre-IPO companies are emerging to counteract these risks — like Augment.Augment makes private secondary transactions seamless for buyers and sellers of shares in growing private firms like Stripe, Cerebras, and Scale.AI. It provides centralized oversight as well, lending more structure and transparency to the private markets.
There are a few key reasons why an investor might want to allocate a portion of their portfolio tothis alternative asset class.First, there’s diversification. It’s a crucial component of almost any investment strategy, and stocking up on assets that aren’t publicly traded may help hedge an investor’s portfolio, as private markets aren’t always correlated with volatility in public markets.Additionally, private markets can offer the potential for higher returns compared to public markets, particularly with pre-IPO companies. However, these opportunities come with substantially higher risks, including significant potential for complete loss of investment, extreme illiquidity, and lack of transparency.Bluechip names like Meta and Uber began in the private market, and early investors saw im-mense gains as those companies transformed into the tech giants they are today.
You don’t need to be a venture capitalist to get in on the ground floor. Simply look to the private secondary market, and the marketplaces that make it.
*Past performance does not guarantee future results.
**Private markets carry distinct risks including limited liquidity and potential loss of investment.
Important Disclosures:
Investing in private securities involves significant risks including potential loss of principal, limited liquidity, and no guaranteed returns. These investments are available only to qualified accredited investors and typically have longer holding periods with limited pricing transparency. Historical performance does not predict future results