Gillian Tett (Opinion, June 7) acknowledges that private company investing operates on a caveat emptor basis but public company investing requires full disclosure.
It is indeed the key differentiator between two quite distinct markets.
Valuations of private companies are inherently more subjective than for public companies. The only moment of price discovery is either a primary issue or a managed sale of a material holding — but even then sophisticated bidders can vary widely in their views on price. This renders quarterly valuations as practically meaningless.
Seeking to regulate private investing in the same way as public markets defeats the point. There will be more failures than in public markets and this reflects the need for more acceptance of risk. Which is why private company investing is not retail and why it demands different skills to investing in public markets.
Chancellor Jeremy Hunt’s excellent Private Intermittent Securities and Capital Exchange System (Pisces) initiative (“Hunt plans to allow sale of private stock on exchanges”, Report, March 2) to establish a facility for secondary trading in private company shares is much welcomed. It should increase liquidity and help reduce the current significant discount applied to secondary trades.
But it should not be seen as a “public light” market. There should be no confusion that caveat emptor continues to apply with appropriate governance protections. That is in fact safer than pretending that investing in private companies is a little bit like investing in public companies. It isn’t.
Charlie Geffen
Former Senior Partner, Ashurst, London SW17, UK
