Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

What term describes the sale of a public asset to a private operator?

1. Nationalization

2. Public-Private Partnership

3. Privatization

4. Consolidation

The correct answer is: Privatization

The term that describes the sale of a public asset to a private operator is privatization. This process involves transferring ownership or control of a public sector enterprise or asset to private sector entities, which is often pursued to increase efficiency, improve service quality, or enhance investment in the asset. Privatization can take various forms, including outright sale, leasing, or contract management, and is typically motivated by the belief that private operators can manage resources more effectively than public entities. In this context, public sector organizations might sell assets such as utilities, transportation services, or real estate as part of broader economic reforms or budgetary measures. This transaction fundamentally changes the nature of ownership and management, shifting responsibilities from public governance to private management. Other terms related to public sector operations, such as nationalization or public-private partnerships, do not accurately capture the specific action of selling a public asset to a private entity, thus reinforcing the distinctiveness of privatization in this context.