How Can a Family Compare Private Investments With Publicly Traded Alternatives?

Compare private investments and publicly traded alternatives by looking at what each investment owns, how it can produce a return, and the risks tied to its structure. A private label alone does not show whether an opportunity is attractive. The family needs to understand the business or assets, the manager or sponsor, the fees, and the path to realizing value.

Compare the Underlying Exposure

Begin with the economic exposure. Is the private investment tied to a company, property, loan, or fund strategy available in public markets? Compare business models, revenue sources, debt levels, and sensitivity to market conditions. Public and private investments may provide exposure to similar sectors while differing in ownership rights, financing terms, governance, or access to information.

Consider whether the private investment offers a capability the family does not have internally. A fund manager may handle sourcing and assessment, then provide ongoing oversight. A direct investment may offer more control, but the family must perform those functions or hire the necessary expertise. Account for the time and resources involved, along with the fees. The choice between pooled funds and separate accounts raises related questions about control and manager responsibilities.

Account for Liquidity and Valuation

Public securities generally have observable market prices and can often be sold through the market, though prices can move sharply. Private assets may lack a frequent market price, and a reported valuation may rely on methods or assumptions that do not reflect the price available in a sale. Ask how valuations are prepared, how often they are updated, and what evidence supports them.

Review how long the capital may be committed, what options exist for exiting, and whether distributions depend on a sale, refinancing, or repayment. Private funds can lock up capital for a set period, and redemption requests may be required to exit. Compare a private investment with limited liquidity against public alternatives over a similar time horizon. Use the liquidity and return tradeoff to test whether the family can hold the position through delays.

Compare Returns on Consistent Terms

Make sure return figures use the same basis. Review private investment returns after fees and expenses, and understand whether figures reflect realized cash or estimated values. Compare them with an appropriate public benchmark over a matching period, accounting for differences in risk and liquidity, as well as the use of borrowing. The direct deal IRR and MOIC calculator can help frame return measures for a direct investment.

Assess the risks separately for each investment type. Private equity can involve substantial borrowing, while public investments face market price changes and other risks. A family should not assume one structure is inherently safer. Ask what could cause a permanent loss and how the position fits with the rest of the portfolio. The portfolio model should reflect the family's objectives, time horizon, and capacity to hold less liquid assets.

A fair comparison explains what the family owns, what it pays, when it can access capital, and how uncertain the return estimate is. If those points cannot be assessed on comparable terms, treat the gap itself as a decision factor.

Every area of investment brings with it different types of risks.

Sources: The Family Office Book, The Single Family Office. Informational only, not financial, legal or tax advice.