Public vs private assets - what's the difference?

Mention 'investing', and many of us think of public sharemarkets. But as Chris Paton, senior vice president and chief investment officer at La Trobe Financial explains, private asset markets offer a world of opportunity.

Around 7.7 million Australians invest in publicly listed shares. It's great to see so many people investing directly and via their superannuation funds. But around the world, it is private asset markets that are attracting investor interest.

The difference between private and public markets

As the name suggests, 'public' investment markets, such as our own sharemarket (the ASX), allow anyone to buy or sell shares in a listed company.

Companies list on public markets as a way of raising capital. The catch is that a listing doesn't come cheap.

For context, a company with market capitalisation of, say, $2 billion listing on the ASX in 2024 would face an initial listing fee of more than $1 million plus an annual listing fee of around $115,000.

These costs, together with substantial reporting requirements, help to explain the long-term decline in the number of publicly listed companies.

Today there are 1998 companies listed on the ASX, down from 2158 in 2022.

Public-company listings in the US peaked at almost 6000 in the mid-1990s, and have almost halved in the past 20 years.

Of course, companies still need to raise funds - either equity or debt, to grow and prosper.

What has changed, is that these days many high-quality companies are shying away from publicly listed markets, and opting for private markets instead.

What do we mean by 'private markets'?

Private markets cover a broad range of options from private equity, where company shares are bought and sold privately, through to private credit, which is essentially lending by alternative asset managers such as La Trobe Financial.

What does this shift mean for investors?

A decline in the number of companies listing on public markets has been accompanied by tremendous growth across private markets.

According to McKinsey, private market assets globally totalled $US13.1 trillion ($19.7 trillion) in mid-2023, and have grown nearly 20% annually since 2018.

Here's the exciting part.

This growth has seen private markets reach critical mass, helping to make private markets accessible to retail investors.

These are not new types of assets or new types of investments. It's just that until now, private markets have chiefly been the domain of institutional and wholesale investors such as large super funds.

Today, however, retail investors can also get involved.

Better still, this is happening at a time when we see a 'super cycle' of investment forecast across four key areas: digitalisation, decarbonisation, deglobalisation, and de-banking.

Why private credit makes sense

De-banking is of particular interest.

It refers to the shift many companies are making away from traditional banks in favour of private lending groups, also known as 'private credit'.

In an environment where regulatory capital requirements for banks continue to grow, banks are stepping away from loans they would have previously written.

Private lending groups see this opportunity to access quality assets, and investors benefit through defensive strategies for, low-volatility income.

This shift is allowing retail investors to add private credit to their portfolio - an asset class that can help stabilise a portfolio because returns are not linked to volatile equity or public markets.

Returns on private credit can be impressive.

Since 2005, direct lending to U.S. middle market companies has provided an average total return of about 9.4% per annum.

Moreover, some private credit investments can be a source of regular income for investors, with ongoing returns often paid monthly.

What to look for in private credit providers

As an increasing number of providers jump into the private credit market, retail investors need to look at a provider's track record.

La Trobe Financial has a history in this sector extending back to 1952.

Today, La Trobe Financial manages over $20 billion in assets across our institutional, wholesale, and retail investors.

We offer a variety of options to everyday Australian investors.

From our popular La Trobe Australian Credit Fund which invests in Australian real estate private credit, to our La Trobe US Private Credit Fund, which aims to give everyday Australian investors a defensive exposure to U.S. mid-market private credit for the very first time.

In fact, the La Trobe US Private Credit Fund has been specifically designed to give Australian investors an opportunity to participate in two powerful trends, de-banking and deglobalisation which are driving the rebuild of the U.S. middle market.

With a target yield of 8.5%pa net of fees, it gives investors an opportunity to be on the lending side of the ledger, with access to senior secured loans to U.S. middle market corporate companies, many of which are owned by some of the largest private equity firms in the world.

The bottom line

Public assets, notably listed shares, will always deserve a place in portfolios.

But for retail investors seeking the trifecta of diversification, healthy yields and low volatility, the time has definitely come to consider private markets.

They have, after all, been on the radar of institutional investors for many years. Now is the time for retail investors to get their slice of the action.

Any advice is general and does not consider your personal circumstances. Past Performance is not a reliable indicator of future performance. La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence No. 222213 is the responsible entity of the La Trobe Australian Credit Fund ARSN 088 178 321 and the La Trobe US Private Credit Fund ARSN 677 174 382. It is important that you consider the relevant Product Disclosure Statement (PDS) before deciding whether to invest or continue to invest in the fund. The PDSs and Target Market Determinations are available on the La Trobe Financial website. Past Performance is not a reliable indicator of future performance.

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