A public equity fund is an investment fund where your money is invested by others. The investors are usually private companies. These companies have a more professional team and proven investment products. The fund manager is often paid a portion of the profits, which creates powerful incentives for good performance. By contrast, the managers of a public equity fund have little or no incentive to do well.
A public equity fund raises money via an initial public offering (IPO) and invests in securities with a specific investment strategy. This strategy can be broad or industry-specific, such as buyouts or venture capital. A public equity fund may also be a mutual fund that focuses on a certain industry or company sector.
Private equity firms are also known for achieving high returns. They are able to do so by aggressively using debt for financing and tax benefits. They also focus on cash flow and margin improvement. Private equity firms are free from many of the regulations that apply to public companies. This helps them create the type of returns that investors want, and they have fewer competition.
The primary difference between a public and a private equity fund is that a public fund’s manager retains control of the capital and principal, while a private equity fund’s general partner earns a management fee based on how well the fund performs. The general partner of a private equity fund earns a higher percentage of profits than a public fund’s manager. This percentage is known as a carry, and typically amounts to 20% or more.
