The debate between public and private equity is rarely as straightforward as it proponents on either side suggest — and Toby Watson brings a perspective shaped by deep experience on both sides of that divide.
Private equity has attracted enormous capital over the past decade, often based on historical return data that tells only part of the story. At the same time, public markets offer liquidity and transparency that private alternatives cannot match. Finding the right balance between the two is one of the more consequential decisions facing long-term investors — and one that deserves more careful analysis than it often receives. Toby Watson, whose career at Goldman Sachs International exposed him to both public market dynamics and complex private capital structures, is well-placed to cut through the noise and offer a grounded assessment of where each genuinely adds value.
The question of how to balance public and private equity exposure is one that increasingly sits at the centre of portfolio construction decisions for sophisticated investors. Toby Watson, a partner at Rampart Capital, brings a perspective to this debate that is grounded in direct experience rather than theoretical preference. Having spent the better part of two decades working across institutional capital markets — including structured credit, principal funding and hard asset lending — he has developed a clear-eyed view of what private equity can realistically offer, where it falls short, and how it can most effectively complement a public market allocation within a well-constructed portfolio.
Understanding What Each Market Actually Offers
The starting point for any serious comparison of public and private equity is a clear-eyed assessment of what each market is actually offering — rather than what its most enthusiastic advocates claim on its behalf.
Public equity markets offer something that is genuinely valuable and frequently underappreciated: price discovery, liquidity and a continuous mechanism for incorporating new information into valuations. Toby Watson has long emphasised that the ability to buy and sell positions quickly, at transparent prices, is not merely a convenience — it is a structural feature that allows portfolios to be adjusted as circumstances change.
Private equity, by contrast, offers access to a segment of the economy that is simply not available through public markets. Toby Watson notes that a large proportion of genuinely interesting businesses — particularly mid-market companies, family-owned enterprises and businesses at earlier stages of development — are not listed and have no intention of listing. For investors willing to accept illiquidity and a longer time horizon, private equity provides a route into this segment that public markets cannot replicate.
Is the private equity return premium real — and where does it come from?
The historical return premium attributed to private equity relative to public markets is genuine in aggregate, but its sources are worth examining carefully. Toby Watson’s view, informed by his years working across capital structures at Goldman Sachs International, is that the premium reflects several distinct factors: an illiquidity premium for accepting reduced access to capital, leverage applied at the portfolio company level, and in the best cases, genuine operational value creation by skilled managers. Understanding which of these is driving returns in any specific fund or strategy is essential for assessing whether the premium is likely to persist.
Toby Watson on the Risks That Private Equity Advocates Understate
The case for private equity is well-made in most investment marketing materials. The risks are less consistently emphasised — and Toby Watson is direct about the ones that deserve more attention from investors.
The first is valuation opacity. Unlike public equities, where prices are updated continuously, private equity valuations are typically assessed quarterly by the fund manager using methodologies that allow considerable discretion. Toby Watson points out that this can create an illusion of stability — smooth, gradually rising valuations that do not reflect the volatility that would be apparent if the same assets were publicly traded. The 2022 public equity sell-off, which was only partially reflected in private equity valuations at the time, illustrated this dynamic clearly.
The second is vintage year concentration. Private equity returns vary enormously depending on when a fund was raised and deployed. Funds raised at the peak of a cycle — when entry valuations are high and leverage is cheap — have historically delivered meaningfully weaker returns than those raised during more cautious periods. Investors who do not build diversified exposure across multiple vintage years take on a concentration risk that is not always adequately reflected in their overall portfolio assessment.
The third is manager dispersion. The gap between top-quartile and bottom-quartile private equity managers is far wider than the equivalent gap in public markets. Access to consistently top-performing managers is limited and requires relationships and track records that are not easily established. Toby Watson’s experience at Goldman Sachs International, working alongside some of the most sophisticated institutional investors in global markets, gave him a clear-eyed appreciation of just how much manager selection matters in private equity — and how difficult genuine access to top-tier managers can be.
When Private Equity Makes Sense — and When It Does Not
For Toby Watson, the question is never whether private equity is good or bad in the abstract — it is whether it is appropriate for a specific investor in a specific context:
- Investors with genuinely long-time horizons, limited liquidity needs and access to high-quality managers are well-placed to benefit from private equity exposure
- Investors who overestimate their liquidity tolerance, underestimate the J-curve effect on near-term returns, or lack access to top-tier managers may find that private equity adds complexity without a commensurate return benefit
- The optimal allocation to private equity within a diversified portfolio depends on factors that are specific to each investor — and deserves the same rigorous, individualised analysis that any other major allocation decision requires
Balancing Public and Private: A Framework for Thinking About It
Toby Watson’s approach to the public versus private question starts not with a predetermined view on asset class attractiveness but with the specific circumstances and objectives of the investor in question.
Public equity remains the foundation for most long-term growth allocations — offering liquidity, diversification and exposure to a broad range of businesses and geographies that private markets cannot efficiently replicate at scale. Private equity complements this foundation by providing access to segments of the economy and return drivers that public markets do not reach. For Toby Watson, the two are not rivals but partners in a well-constructed portfolio — each serving a distinct purpose that the other cannot fulfil.
The right balance between the two is not a fixed number. It depends on time horizon, liquidity requirements, access to quality managers and the investor’s genuine tolerance for the opacity and illiquidity that private equity entails. Getting that balance right — honestly, without being swayed by the recent performance of either market — is one of the more demanding and consequential aspects of long-term portfolio construction. It is also, for Toby Watson, one of the more interesting ones.
