Public vs. Private Investing

There are certain differences between investing in the private markets versus the public markets. Pinnacle Wealth Brokers Inc. (Pinnacle) believes investors should include both private and public market securities in their investment portfolios as part of a diversification strategy provided they are suitable investments.

Generally, diversifying an investment portfolio across public and private markets creates resiliency within a portfolio by, among other things, withstanding the full impact of market corrections and reducing concentration risk, which are prudent when constructing a long-term investment portfolio.

Why invest in the Private Markets?

Generally, people invest in the private markets since there is an expectation of potential higher returns relative to traditional public markets investment. This is called the risk/reward trade-off which is the relationship between the amount of return gained on an investment and the amount of risk undertaken in that investment. The greater the return sought, the more the risk that an investor assumes. “Risk” means the risk of losing the principal amount of one’s investment, in whole or in part. For those investors that have a risk profile that supports investing in high risk investments, the private markets represent an opportunity for greater returns; but it is not for everyone.

Difference Between Reporting Issuers versus a Private Issuer [Non-Reporting Issuer]

In legal jargon, public companies are called “reporting issuers” whose securities generally trade on a stock exchange, such as the Toronto Stock Exchange. They are called “reporting issuers” since, among other things, they:

  • have to file a prospectus that is reviewed and receipted (a preliminary and final prospectus) by the applicable securities commissions; and
  • are subject to a continuous disclosure regime that requires them to make various public filings, such as annual and interim financial statements, management information circulars for special and general meetings and material change reports.

An investor can find a reporting issuer’s publicly available information on a website maintained by the Canadian Securities Administrators called SEDAR at: https://www.sedar.com (SEDAR).

In contrast, a “private issuer” (i.e., a non-reporting issuer) generally has less disclosure about the company’s business and affairs and its securities do not trade on a stock exchange. Although a private issuer does not file a prospectus with a securities commission, issuers selling securities under the offering memorandum (OM) exemption (the OM Exemption) (an exemption from the prospectus requirement under securities law) have to complete a prescribed form of offering document which is filed [but not reviewed or receipted] by a securities commission. However, securities commission may review and comment on an offering memorandum after it is filed as part of its continuous review of a private issuer’s offering documents. Only recently, have offering memoranda sold under the OM Exemption been made available on SEDAR which can be searched for such documents as well as any related OM marketing materials.

Conclusion

We hope this brief comparison helps you better understand certain differences between the private and public markets. Pinnacle is different than investment dealers since our primary focus is on private market investments, however, we have referral agreements in place with certain portfolio managers that can provide you with access to public market securities. Feel free to contact your Pinnacle Dealing Representative for more information.