Public Equity

Public Equity includes passive, factor, and active strategies investing in listed companies. For allocators, public equity is not simply “stocks.” It is the liquidity anchor that supports portfolio rebalancing, pacing to private markets, and risk budgeting.

How allocators define Public Equity exposure

Allocators segment exposure by:

• Implementation: passive, active, enhanced index, factor/Smart Beta
• Factor profile: value, quality, momentum, low vol, size
• Geography/currency: U.S., developed ex-U.S., EM; hedging policy
• Concentration: megacap/sector exposure, single-name limits, index skew
• Style drift: persistent process vs opportunistic tilts
• Tracking error & risk budget: where active risk is allowed and why

The real question is often:
“What equity risk are we choosing—and where do we want to be paid for it?”

Core approaches within Public Equity

• Market-cap indexing: low cost, high concentration in top constituents
• Factor investing: targeted exposures with cyclicality and regime risk
• Active fundamental: stock selection with capacity and benchmark discipline
• Thematic/sector: concentrated bets requiring strict risk controls

How Public Equity fits into allocator portfolios

Allocators use public equity to:

• Maintain liquid growth exposure
• Fund commitments and rebalance in dislocations
• Provide portfolio flexibility when private assets lag in pricing
• Express controlled regional or factor tilts (policy-dependent)

How allocators evaluate Public Equity managers

Conviction increases when there is:

• Clear factor attribution (what drove returns, consistently)
• Capacity discipline (edge survives size)
• Risk controls around concentration and drawdowns
• Evidence of process stability across regimes
• Net-of-fee skill that persists beyond a single cycle

What slows allocator decision-making

Diligence often stalls due to:

• Unclear factor exposures (“alpha” that is just momentum/beta)
• Overconcentration masked by “benchmark” language
• Style drift when conditions change
• Fees that are unjustified versus implementation alternatives

Common misconceptions

• “Passive is always diversified” → market-cap indexes can be highly concentrated.
• “Active is about better picks” → often it’s about factor tilts + risk control.
• “Factor premiums are guaranteed” → factor performance is regime-dependent.

Key allocator questions

• Where does performance come from: beta, factors, selection, or timing?
• How concentrated is the portfolio and why?
• What is the drawdown profile versus benchmark?
• How does the strategy behave when rates/inflation shift?
• What is capacity and at what AUM does edge degrade?