What is the difference between public funds and private funds?
Hello everyone, I am Fatty! I believe that when many friends are in contact with funds, they often hear about public funds and private funds. What is the main difference between public funds and private funds? Let me tell you about it today!
Public placement bonds are mainly sold directly to investors in the securities market. Investors can be financial institutions, individuals or other investors; private placement bonds are bond issuers who directly sell bonds to a small number of investors. are institutional investors.
First of all, public funds raise funds from public investors in an open manner, while private funds are private and can only raise funds from specific qualified investors.
Secondly, public funds have relatively low threshold requirements for purchasing funds, but private equity funds require investors to have high risk identification capabilities and risk-taking capabilities. Its corresponding threshold for purchase funds for buyers is relatively high, requiring hundreds of thousands of yuan to get started.
Third, the transparency of public funds is very high. The information on product investment and operation is regularly released through quarterly reports, semi-annual reports, annual reports and other periodic reports, but private funds only disclose information to regular qualified investors, and the content of the disclosed information is not released publicly.
Fourth, public funds are very strict in terms of risk control and compliance, and there are more restrictions on investment, but private funds are more flexible. For example, the investment direction and available investment tools of a public offering fund portfolio are relatively simple, and they are all agreed in advance in the contract, and it is difficult to directly change them during the investment process. However, private equity portfolios generally have fewer agreements and are more flexible in the use of investment vehicles.
Fifth, the charging mechanism of public funds is different from that of private funds. The income of public funds mainly comes from fixed management fees, while the income of private funds mainly comes from floating management fees. For example, a private equity fund agrees in the contract to use 20% of the investment income as a commission.
1. Public offering: advantages:
(1) It is issued to a large number of people and has great potential for raising funds, which is suitable for issuers with a large number of securities issuances and a large amount of financing.
(2) The scope of issuance is large, which can avoid hoarding securities or being manipulated by a few people.
(3) Only publicly issued securities can apply for listing on the exchange, which can enhance the liquidity of securities and improve the social reputation of the issuer.
shortcoming:
(1) The issuance process is more complicated.
(2) It takes a long time for registration and approval.
(3) The issuance cost is relatively high.
2. Advantages of private placement:
(1) A stable source of funds.
(2) High value-added services.
(3) It can reduce financial costs.
(4) Improve the intrinsic value of the enterprise.
shortcoming:
(1) After the company transfers its equity, the equity of the original shareholder is diluted, or even loses its controlling position or completely loses its equity, the relationship between shareholders changes, and the rights and obligations are readjusted.
(2) With the changes in the equity structure, the management rights of the enterprise will also change accordingly, and the management rights will be owned by the controlling shareholder after the equity transfer.
(3) In the case of changes in the management rights of enterprises, the new managers are likely to have different development strategies, and it is not impossible to completely change the original intention and assumptions of the entrepreneurs.
(4) Investors often hope to obtain investment returns as soon as possible, and may not pay as much attention to the long-term development of the enterprise as business entrepreneurs, so they may change the development strategy of the enterprise to achieve short-term benefits.
Finally, public funds are a little more liquid than private equity funds. After the product is established, public funds with an open operating model can usually apply for redemption after a period of closed operation, while private equity funds usually open positions on a regular basis, such as opening and redeeming positions every quarter or every six months. This is the main difference between public funds and private funds, isn't it much clearer?