Industry characteristics explain the cross section of investment returns among industries consisting primarily of private firms as well as among industries composed mostly of public firms. For both types of industries, common asset pricing models explain the cross-sectional variation of characteristic-based investment returns. Tobin’s q and its cross sectional variation are very similar across private and public firms. An industry’s characteristics, not the fraction of private firms in it, determines the industry’s cost of capital. Assuming that managers of private firms are less affected by investor misvaluation our results are consistent with a rational interpretation of the role of characteristics. Joint with Richard Priestly.