You've probably bought stocks or exchange-traded funds (ETFs) before — or at least thought about it. You open an app, tap a button, and you own a tiny slice of a company. Easy. But there's a whole other universe of investing that most people never see: private markets. It's where startups raise their first millions, where massive real estate deals get done, and where pension funds quietly put billions to work. So what's the difference between these two worlds — and does it matter for your portfolio?
Here's what you need to know about how private and public markets compare, where the trade-offs lie, and what to consider before diving into either one.
What are private and public markets?
At the most basic level, the distinction comes down to access. Public markets are open to everyone. Private markets are — well — not.
How public markets work
Public markets are the ones you hear about on the news. Companies "go public" by listing their shares on a stock exchange — in Canada, that's typically the Toronto Stock Exchange (TSX) or the TSX Venture Exchange. Once listed, anyone with a brokerage account can buy and sell those shares during market hours.
Public markets also include bonds, ETFs, mutual funds, and other securities that trade on regulated exchanges. The key feature: prices are set in real time by supply and demand, and transactions happen almost instantly.
How private markets work
Private markets are where investments happen outside of public exchanges. Think venture capital, private equity, private credit, private real estate funds, and infrastructure deals. Instead of buying shares on an exchange, investors commit capital directly to a fund or company — usually through a fund manager.
Historically, private markets were reserved for institutional investors (pension funds, endowments, and sovereign wealth funds) and high-net-worth individuals who qualify as accredited investors. That's been changing in recent years, with more products opening private market access to everyday investors — but the barriers are still higher than buying a stock.
Liquidity: the biggest trade-off
If you could distill the private-vs.-public debate into one word, it would be liquidity.
Why public markets are more liquid
Liquidity means how easily you can convert an investment into cash. In public markets, it's almost instant. You sell your shares during market hours, and the cash typically settles in your account within 1 to 2 business days. There are millions of buyers and sellers at any given time, so finding someone to take the other side of your trade is rarely a problem.
This matters more than people think. Liquidity gives you flexibility — to rebalance your portfolio, cover an unexpected expense, or simply change your mind.
What illiquidity means for your money
Private market investments are a different story. When you commit capital to a private equity or venture capital fund, your money is typically locked up for 7 to 10 years. Some funds offer limited redemption windows — maybe quarterly or annually — but there's no guarantee you can get your money back when you want it.
There are secondary markets where private fund interests can be sold, but they're small, slow, and often involve selling at a discount. In practical terms, if you invest in a private market fund, you should assume that money is inaccessible for years.
That illiquidity isn't necessarily bad — fund managers argue it lets them make long-term decisions without worrying about short-term market swings. But it does mean you need to be honest about your cash needs before committing.
How investments are valued
The way an investment gets priced affects everything: how you track performance, how you compare options, and how much confidence you can have in the number on your screen.
Mark-to-market in public markets
Public market investments are valued using "mark-to-market" — the price is whatever someone last paid for the asset on the open market. If you own shares of a company listed on the TSX, your holdings are worth whatever the current trading price is, updated in real time.
This is transparent and objective, but it also means your portfolio value swings with daily market sentiment. A rough day for the economy and your account balance drops — even if nothing has changed about the companies you own.
Mark-to-model in private markets
Private investments don't trade on an exchange, so there's no live market price. Instead, they're valued using "mark-to-model" — meaning the fund manager estimates what the investment is worth based on financial models, comparable transactions, or appraisals. These valuations are typically updated quarterly, not daily.
The upside: your account won't show wild daily swings. The downside: the number you see may not reflect what you'd actually get if you tried to sell. It's an estimate, and it depends on the assumptions baked into the model.
Why the valuation method matters
This isn't just an academic distinction. The smoothness of private market returns is partly a feature of infrequent valuation, not necessarily better performance. When public markets crash, private fund valuations might not adjust for months — which can make private investments look more stable than they actually are.
It also makes comparing public and private returns tricky. You're not always comparing apples to apples.
Transparency, reporting, and regulation
How much you can know about what you own — and what rules exist to make sure you can know it — is another major difference between these two worlds.
What public companies must disclose
Public companies in Canada are regulated by provincial securities commissions and must file regular financial statements, material change reports, and insider trading disclosures. If something significant happens — a big acquisition, a lawsuit, a change in leadership — it has to be disclosed promptly.
As an investor, you can look up quarterly earnings, annual reports, and proxy circulars for any public company. Analysts pore over this data, media covers it, and third-party services rate and rank these companies. The information asymmetry between big institutional investors and regular people isn't zero, but it's relatively small.
This is backed by a formal regulatory structure: the Canadian Securities Administrators (CSA) coordinates rules across provinces, while the Investment Industry Regulatory Organization of Canada (CIRO) regulates investment dealers and trading activity. Public companies must register their securities, file prospectuses, and meet ongoing disclosure obligations — and investors benefit from protections like mandatory financial audits, insider trading restrictions, and complaint resolution processes.
What private companies don't have to share
Private companies and funds have far fewer disclosure requirements. Fund managers will typically provide quarterly reports to their investors, but the depth and format vary — there's no standardized reporting framework the way there is for public companies.
That's partly because private investments usually fall under prospectus exemptions, meaning they skip the full registration process public securities go through. The most common is the accredited investor exemption, which limits participation to individuals who meet specific income or net worth thresholds (in most provinces: net income over $200,000 individually, or $300,000 combined with a spouse, or net financial assets over $1 million). Exempt market dealers (EMDs) facilitate many of these transactions and are registered with provincial regulators — but the overall framework is lighter, with less mandatory disclosure and more onus on you to do your own due diligence.
In practice, this means you're relying more heavily on the fund manager's track record and reputation. You may not have full visibility into underlying holdings, fee breakdowns, or risk exposures until well after you've committed capital.
For some investors, this opacity is uncomfortable. For others, it's an acceptable trade-off for access to a different set of opportunities. Recent regulatory changes have started to expand access — some private market products are now available through offering memorandum exemptions or funds structured to meet retail investor requirements — but the landscape is still evolving.
Fees and costs
The cost structures of public and private markets are fundamentally different, and understanding them matters more than most people realize.
What you pay in public markets
Public market investing has gotten significantly cheaper over the past decade. Many brokerages offer commission-free trading for stocks and ETFs. If you invest in index ETFs, you'll pay a management expense ratio (MER) — often in the range of 0.05% to 0.25% annually. Even actively managed mutual funds, which are more expensive, typically charge MERs between 1% and 2.5%.
These fees are transparent, clearly disclosed, and easy to compare across products.
What you pay in private markets
Private market fees follow a different model — and they're almost always higher. The traditional structure is called "2-and-20": a 2% annual management fee on committed capital, plus a 20% performance fee (called "carried interest") on profits above a certain threshold.
In practice, the numbers vary. Some funds charge lower management fees (1% to 1.5%) or higher performance fees. There may also be additional costs: fund administration fees, legal fees, audit fees, and transaction costs that can eat into returns.
An important nuance: management fees in private markets are often charged on committed capital, not invested capital. That means you're paying fees on money the fund hasn't even deployed yet.
Are higher fees worth it?
This is the central question, and there's no universal answer. Proponents argue that skilled private market managers generate returns that more than compensate for the fees. Critics point out that after fees, many private market funds don't consistently beat a simple index fund.
The only honest answer: it depends on the specific fund, the specific manager, and the specific time period. Past performance is a notoriously poor predictor of future results — in both public and private markets.
Returns: do private markets actually outperform?
This is the question everyone wants answered. And — frustratingly — the answer is complicated.
The case for higher returns
Industry data often shows that private equity and venture capital have outperformed public markets over long time horizons. The logic makes intuitive sense: private market managers can take a longer-term approach, make operational improvements to companies they own, and access deals that aren't available on public exchanges. The illiquidity premium — the extra return investors expect for locking up their money — is a real economic concept.
Some institutional investors have built significant portions of their portfolios around private markets for exactly this reason. Canada's largest pension funds, for example, allocate heavily to private equity, infrastructure, and real estate.
The caveats you should know
But the headline numbers deserve scrutiny. A few things to keep in mind:
Survivorship bias. Poorly performing funds are less likely to report their returns, which skews industry averages upward.
Valuation smoothing. Because private investments are valued infrequently, their reported volatility is lower than it might actually be — which can make risk-adjusted returns look better than they are.
Dispersion matters. The gap between the best and worst private market managers is enormous — far wider than in public markets. Picking the right fund matters a lot more.
After fees. Gross returns might look impressive, but after the 2-and-20 fee structure (and other costs), net returns to investors can be significantly lower.
Access. The top-performing funds are often closed to new investors or require very large minimum commitments. The private market funds available to most people may not deliver the same returns as the ones cited in industry studies.
None of this means private markets are a bad investment. It means you should be careful about comparing a highlight reel to the full picture.
Which is right for you?
There's no single right answer here — and anyone who tells you otherwise is probably selling something.
Public markets offer liquidity, transparency, low fees, and easy diversification. Broad-based index funds, for example, have historically served as a foundational tool for long-term investors. Private market exposure isn't a prerequisite for building wealth over time.
Private markets can offer diversification benefits, exposure to different types of assets, and potentially higher returns — but they come with real trade-offs. Higher fees, less liquidity, less transparency, and a wider range of outcomes. They also typically require a longer time horizon and a higher tolerance for uncertainty.
The most important thing isn't choosing one side over the other. It's understanding what you're giving up and what you're getting in return — and making sure either choice fits your financial situation, your goals, and your ability to leave money alone for as long as it takes.
Whatever path you choose, the fact that you're asking the question already puts you ahead of most people.
