Private Investments

You’ve got a growing business and a growing investment portfolio but are looking for more investment ideas. You’ve been hearing about private investments but want to know why these could benefit you.

What Are They? 

A private investment is an investment made in assets that are not traded on public stock exchanges. Instead of buying shares of a company such as Apple or Coca Cola, you would invest money into private companies, real estate projects, infrastructure, or private loans.  Think of it like this: while public markets are like shopping at a mall, private investments are more like getting access to a boutique.

Why Are They Important? 

Private investments can be made directly but usually come with extremely high buy-in requirements.  Recently, private investments have become more available through specialized funds which solves the high buy-in problem.

Private investments also offer advantages like diversification and potentially higher returns.  The potential higher return comes with a trade-off: private investments are not always liquid.  This means, if you need access to your money, you may need to wait.   Private investments in funds usually have quarterly redemption options, but also have a lock-up period which could range from 1 year or more.  

Another advantage of private investments is that they tend to have low correlation with public markets. This means that within periods of economic uncertainty and recession some private investments go against market trends, which can add another level of security and diversification within your portfolio.

Privates in Action  

Let’s take Jordan:  he owns a textiles manufacturing business that is generating $15M in annual revenues.  Jordan owns personal and rental real estate, has personal investments, and a corporate investment portfolio worth $5M.  He’s 50 years old, married with 2 kids, and his wife works full time as a nurse.  Jordan is looking to diversify his investments even further so he discusses private investments with his advisor.  Jordan allocates $750,000 of his portfolio (15%) into a mix of private equity, credit, and real assets. Each of the mix has a one-year lockup period, and allows Jordan to redeem the money every quarter.  Since Jordan does not need this money immediately, he is comfortable with the lockup.  Jordan has now further diversified his portfolio. 

Summary

In summary, private investments offer diversification, potential enhanced returns, and low correlation with public markets.  They are yet another tool in the financial toolkit that could help you build wealth.  When we build financial plans for clients, we often work together with your trusted lawyers and accountants to ensure the right strategy gets put in place.  Please reach out if you think this could be of help to you. 

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