Introduction to PE Part 3: The Secret World of Private Markets
One of the biggest problems with private companies is that they don’t have to tell you anything. In the stock market, companies have to share their financial reports all the time. But in the private world, there’s no law saying they have to.
There are two reasons for this. First, they just don’t have to. Second, it’s really expensive and takes a lot of time to create those reports. Most small and medium businesses don’t even have fancy software to keep track of their money. They have basic math at best.
So, how do investors know what’s going on? They have to find the info themselves. They spend a lot of time collecting, structuring, and analyzing data just to make sure they’re not getting a bad deal.
This is a big part of what private market investing is. It’s about getting everyone on the same page. The investors (the principals) want to make sure the managers (the agents) are actually doing their job. They have to set up a way to keep an eye on everything and make sure everyone is working toward the same goal.
Think of it like being a detective. You have to find the clues and piece them together to see the real picture. It’s not easy, but it’s the only way to make a big investment work.
In the next post, we’ll talk about the data providers who try to make sense of this secret world.