Private markets, and public ones

Introduction

0:04HouseholdCan a family invest like a family office?

0:08To answer that, this film looks at how private and public markets differ, how each began, and what families do with them. It starts with one cheque, written in 1957. In 1957, two young engineers from MIT wanted to build computers. A small Boston firm, American Research and Development, put in seventy thousand dollars, for seventy percent of their company, Digital Equipment.

0:37They found space in an old wool mill, in Maynard, Massachusetts. For nine years, only a few people could own any part of Digital. In 1966, Digital sold its shares to the public, and that first stake was worth about thirty-eight million dollars. At its peak, Digital was the second-largest computer company in the world.

1:04Some companies can be owned by anyone who wants a share. Others, only by a few. I’m Freya, Finna’s AI chief of staff.

Two markets

1:15Start with the market most people know. A public market is an exchange. A listed company’s shares change hands all day, at a price anyone can see. A private market has no exchange. Shares in a company, or in a fund, are bought by agreement, and usually held for years.

1:37Listed companies publish their accounts for everyone. Private ones report to their owners. And most private funds are open only to large investors. The biggest difference is time, or liquidity: how quickly something becomes cash. A listed share becomes cash in a few days. Private equity can take ten years. Three words from this chapter.

2:06A stock exchange: a market where shares of listed companies are bought and sold, at a price anyone can see. A private market: where shares and loans are bought by agreement, not on an exchange. And liquidity: how quickly something can be sold for cash, at a fair price.

How it began

2:26The two markets have very different stories. The public one begins in Amsterdam. In 1602, the Dutch East India Company raised money for its voyages from more than a thousand people in Amsterdam alone. It was a trading company, sailing to Asia for spices. The money was meant to stay in for ten years.

2:48Those who wanted theirs sooner could sell their share to someone else, and within days, people were trading them. In 1612, the company was allowed to keep the money for good. Selling to the next buyer became the way out. That is still what a stock exchange is for. Amsterdam’s exchange still trades today, as part of Euronext, a group of European stock exchanges.

3:14Almost two centuries later, in 1792, twenty-four brokers in New York signed an agreement of just two sentences. They would deal with each other first, and charge a commission of at least a quarter of one percent. It is named after the buttonwood tree on Wall Street where they are said to have met, and it grew into the New York Stock Exchange, today the largest in the world.

3:38Private investing, as a business of its own, is much younger. In 1946, a Harvard Business School professor, Georges Doriot, became president of a new firm in Boston: American Research and Development. Doriot is often called the father of venture capital. His firm’s job was to back young companies, and to wait while they grew.

4:02Unusually, its own shares were listed, so anyone could own a small piece of the young companies it backed. Digital Equipment was one of them. By the 1980s, private money was large enough to buy whole companies. In 1988, the firm KKR bought the tobacco and food company RJR Nabisco, for about twenty-five billion dollars, the largest buyout of its time.

4:30RJR Nabisco made Camel and Winston cigarettes, and Oreo cookies. Its shares left the stock exchange. A public company had become a private one. KKR, founded in 1976, is still one of the largest private equity firms in the world. So, two public dates, and two private ones. Stock markets are more than four hundred years old.

4:57Private markets, as an industry, are about eighty. Three words from this chapter. A share: a small part of a company. Venture capital: money for young companies, in return for a part of them. And a buyout: buying a whole company, often with borrowed money.

Staying private longer

5:19In the last thirty years, the balance has shifted. In 1996, America had more than eight thousand listed companies. Since 2008, it has had between about four thousand one hundred and four thousand four hundred. Companies also list later.

5:38In the 1980s, the typical company was about eight years old when it listed. In 2025, twelve. More of a company’s growing up now happens in private hands. One word from this chapter. A listing, or IPO: when a company first sells its shares on a stock exchange.

How the money moves

6:01Buying into a private fund works differently from buying a share. A family promises an amount to a fund: its commitment. The fund calls it in parts, over the first few years, as it finds companies to buy. So the part not yet called must be ready when the call comes. In the first years, fees and costs come first, so the value can look lower than what went in.

6:29Later, as companies are sold, money comes back. Drawn over time, it looks like a J. Not everyone has seen being able to sell at once as a virtue. John Maynard Keynes was one of the great economists of the twentieth century. He also ran the investments of King’s College, at the University of Cambridge, from 1921 until his death in 1946.

6:57In 1936, in his General Theory, he wrote: Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity. In plain words: finance treats being able to sell at once as a golden rule. Keynes thought that was wrong for a country as a whole.

7:19Its companies, farms and factories cannot all be sold at once. Someone always has to hold them, for the long run. Three words from this chapter. A commitment: the amount a family promises to a private fund. A capital call: the fund asking for part of what was promised.

7:42And the J-curve: a fund’s value often dips in its first years, then rises as companies are sold.

What the research says

7:51So, do private markets earn more? In 2005, the economists Steven Kaplan and Antoinette Schoar, finance professors at the University of Chicago and at MIT, studied private equity funds from 1980 to 2001. After fees, the average fund did about as well as the S and P five hundred, an index of five hundred large American companies.

8:17But the spread between funds was wide, and the best managers tended to stay the best. One more difference. A listed share is priced all day. A private holding is valued by estimate, usually each quarter. So it can look calmer than it is. Keynes saw the same thing, in how colleges looked after their own money.

8:43In 1938, he wrote: Some bursars will buy without a tremor unquoted and unmarketable investments in real estate which, if they had a selling quotation for immediate cash available at each audit, would turn their hair grey.

8:59In plain words: a bursar looked after a college’s money. Some would buy land and buildings without a worry, because no one priced them every day. If those had been priced at every audit, like shares, the swings would have frightened them. A price you cannot see is not the same as a price that does not move. Three words from this chapter.

9:25After fees: what is left of a return once the managers have been paid. An index: a basket of companies that measures a market, like the S and P five hundred. And a valuation: an estimate of what a holding is worth, when it has no daily price.

In a family’s office

9:45So how do wealthy families invest? And what does that mean for everyone else? Most people invest in listed shares and bonds, through a pension, a bank or a fund. Private markets have mostly been closed to them: the minimums are high, and the money is away for years. Wealthy families and their family offices hold the same shares and bonds, and add private equity, private credit and real estate.

10:13That is the traditional balanced mix of a family office. Here are the two over the last thirty years, back-tested with real investments, and shown without numbers. Shares and bonds rose, with deep falls on the way. The family office mix grew more, and more steadily.

10:34Part of that calm is how private holdings are valued: once a quarter. Each year, the difference was only two to three percent. That sounds small. But returns earn returns of their own. Over twenty years, the gap grows large. Over thirty, larger still. That is compounding. The past is no promise for the next thirty years.

11:01And money in private markets is away for years, so it needs time, and cash ready for each call. But this is why family offices hold part of their money in private markets. Three words from this chapter. A balanced mix: investments chosen together, to balance growth and safety.

11:23A back-test: testing a mix on what really happened in the past. And compounding: returns that earn returns of their own, year after year.

In short

11:35So, in short. Public markets trade on an exchange, at a price anyone can see. Private markets trade by agreement, and the money is away for years. Family offices hold them as one part of a balanced mix, for the long run. You’ll find Finna at finnafamilyoffice.com.

11:57Ready when you are.