How To Invest In The Private Market


Dilution Of Share Of Earnings

Investing in private markets

Most private investors generally expect ownership & share of profits, in exchange for their investment. This limits your upside potential if the business gets successful. Hence, keep a check on the number of shares that you gave out to investors. High share ownership, will impact your share earnings & wont be beneficial in the long period.

Higher Stakes At Risks

As Investors, play with higher risks, they expect higher performance from the business they invest in. This can create a lot of pressure on the team if the expectations are not met.

On that account, make sure your investors expectations are in line with your capabilities and potentiality. If not so, its better to find other relevant investors & business financing options.

Advantages Of Private Reits

While private REITs certainly arent great investment choices for everyone, as well get into in the next section, there are several reasons why they could be attractive to investors:

High dividend yields — Generally speaking, private REITs pay higher dividends than comparable public REITs. Public REITs have historically paid dividend yields in the 5%6% range, on average, while private REIT dividend yields have historically been in the 7%8% ballpark, according to National Real Estate Investor.

No daily market fluctuations — Private REITs generally only calculate their share prices every quarter, so investors dont need to stress about daily market fluctuations. If you find yourself obsessing over the share prices of stocks in your portfolio and worrying whenever one of your stocks goes down, the infrequent pricing updates of private REITs could be an attractive quality for you.

Low compliance costs — Public REITs are required to comply with regular financial reporting and corporate governance rules, and this can be quite costly. Because they are subject to very few regulatory requirements, private REITs can save significant money in this area, and can generate superior risk-adjusted returns when compared with their publicly-traded calculations.

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Why Are Investors Considering Private Market Allocations

Return potential

Over the long term, private markets have outperformed traditional assets with the ability to tap into non-economic risk premia .

Reduced volatility

With valuations typically occurring on a quarterly basis, private markets do not experience the same level of mark-to-market volatility seen in public markets.

Inflation hedging

Private markets offer potential inflation hedging benefits, particularly for select natural resources, real estate, infrastructure equity and private credit strategies.

A Beginners Guide To Private Reits

Why the private market is set to dominate investment

Most REIT investors buy shares of their real estate investment trusts on public markets. However, not all REITs are of the publicly-traded variety. There are some public REITs that are not traded, and there are some private REITs that arent open to all investors and dont have many regulatory requirements.

Private REITs can be attractive for a few reasons — they tend to offer superior dividend yields to their publicly-traded counterparts and their lower compliance costs have the potential to result in superior returns. However, there are several drawbacks to private REIT investing that are important to understand before you consider investing your own money in a private REIT.

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Understand The Risks Of Investing In Private Companies

Investing in private companies can be highly risky. If youre buying shares in new companies, you should know that only 50% of new small businesses last five years. Theres a big chance that you could lose all of your investment.

Also, keep in mind that it can be much harder to sell shares in private businesses. If you need money quickly in an emergency, its much easier to sell stocks in public companies. You should consider any money invested in a private business as locked away for the long term.

Why Invest In Private Equity

Institutional investors and wealthy individuals are often attracted to private equity investments. This includes large university endowments, pension plans, and family offices. Their money becomes funding for early-stage, high-risk ventures and plays a major role in the economy.

Often, the money will go into new companies believed to have significant growth possibilities in industries such as telecommunications, software, hardware, healthcare, and biotechnology. Private equity firms try to add value to the companies they buy and make them even more profitable. For example, they might bring in a new management team, add complementary companies, aggressively cut costs, or spin off parts of the business that are underperforming.

You probably recognize some of the companies below that received private equity funding over the years:

  • A& W Restaurants

Without private equity money, these firms might not have grown into household names.

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Investing In Private Markets: Why And How

Historically low interest rates and high stock market valuations have triggered unprecedented investment flows into private markets.

Private market investments provide exposure to asset classes such as venture capital, infrastructure, government real estate, private debt and private equity. Head of UBPs Private Markets Group Brice Thionnet gives us some more details about the asset class.

Private Market Investing Explained

How to Invest in Private Equity (Startups & Private Companies)

Some of the most potentially alluring investment opportunities today can be found outside the public markets. Moreover, the market for such investments has been rapidly expanding, even as the public market has been contracting.

In the year 2000, there were 8,000 publicly traded stocks, and today theres around 3,700, Mitch Reiner, founding partner at Altera Investments told US News and World Report. Thats nearly a 50% decline in public investment options in just over 20 years. Meanwhile, according to McKinseys Private Markets Annual Review, private market assets under management grew 170% within the last decade.

With those facts in mind, heres a brief guide to private market investing.

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HarbourVest is an independent, global private markets firm with 40 years of experience and more than $98 billion assets under management as of March 31, 2022. Our interwoven platform provides clients access to global primary funds, secondary transactions, direct co-investments, real assets and infrastructure, and private credit.

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Our offices span the globe from Boston to Beijing. Reach out through our contact form or find the HarbourVest location closest to you.

Look For Private Equity Exchange

You can also take part in private equity investments without going through a traditional firm through private equity exchange-traded funds, or ETFs.

Private equity ETFs offer exposure to publicly listed private equity companies. This is one approach for those who want to take part in private equity but arent accredited investors or cant meet the minimums required by private equity funds. By investing in ETFs that track these companies, their success is also yours, and you wont have to front a hefty minimum investment to get in on it.

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Venture Investing For Main Street

4 smart investment ideas for entrepreneurs

As I said, Main Street Ventures is a first of its kind investment newsletter. Its all about private investing for the rest of us. And it allows my readers to take advantage of the network of legitimate founders, investors, and entrepreneurs Ive built over the years. But more important than that, it allows me to share a hand-curated list of pre-IPO investments with people like you.

Thats the opportunity I want to offer today

Because youve been a loyal reader of my commentary here in Wealth Daily for all these years, I want you to be one of the founding members of this landmark service.

I want you to get a chance to make the life-changing profits that only come from pre-IPO investing. I want you to feel the excitement building as you watch your small company grow into a household name. And I want you to know the rush of selling your private shares into an IPO as you make your first successful exit.

I want you to know the thrill that got me hooked after my first private investment and have kept me coming back for decades. I want to help you find the next Amazon while shares are still getting sold over the table for $0.50. And I want to get you invested in the next LinkedIn before it gets a massive buyout offer. And I want to help you avoid those sharks out there hunting for inexperienced investors to eat alive.

And, at the end, theres a special offer Ive put together for you if you decide to become a founding member of Main Street Ventures.

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Choosing And Executing A Portfolio Strategy

As we have seen, competing with private equity offers public companies a substantial opportunity, but it isnt easy to capitalize on. Managers need skills in investing and in improving operating management. The challenge is similar to that of a corporate restructuringexcept that it must be repeated again and again. There is no return to business as usual after the draining work of a transformation is completed.

Competing with private equity as a way to create shareholder value will make sense primarily for companies that own a portfolio of businesses that arent closely linked. In determining whether its a good move for your company, you need to ask yourself some tough questions:

Do you have the skills and the experience to turn a poorly performing business into a star? Private equity firms typically excel at putting strong, highly motivated executive teams together. Sometimes that simply involves giving current managers better performance incentives and more autonomy than they have known under previous ownership. It may also entail hiring management talent from the competition. Or it may mean working with a stable of serial entrepreneurs, who, although not on the firms staff, have successfully worked more than once with the firm on buyout assignments.

Mapping Potential Portfolio Strategies

If you can comfortably answer yes to those three questions, you next need to consider what kind of portfolio strategy to pursue.

Types Of Private Companies

From an investment standpoint, a private company is defined by its stage in development. For instance, when an entrepreneur is first starting a business, they usually receive funding from a friend or family member on very favorable terms. This stage is referred to as angel investing, while the private company is known as an angel firm. Past the start-up phase is venture capital investing when a group of more savvy investors comes along and offers growth capital, managerial know-how, and other operational assistance. At this stage, a firm is seen to have at least some long-term potential.

Past this stage can be mezzanine investing, which consists of equity and debt, the last of which will convert to equity if the private company can’t meet its interest payment obligations. Later-stage private investing is simply referred to as private equity it is a roughly two trillion dollar business with many large players.

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How Big Is The Impact Investing Market

Impact investing is a relatively new term, used to describe investments made across many asset classes, sectors, and regions. In 2019 for the first time, the GIIN developed a rigorous methodology to estimate the total size of the market. Since this inaugural market sizing effort, the GIIN has strengthened its database and methodology to continually improve its approach and on June 11, 2020, the GIIN published the 2020 Annual Impact Investor Survey, which includes an updated market sizing analysis, which estimates the current market size at USD 715 billion.

This analysis examines the supply of capital allocated to impact investing as of the end of 2019, using impact investing AUM as the indicator of market size. The GIIN estimates that over 1,720 organizations manage USD 715 billion in impact investing AUM as of the end of 2019. The market comprises a range of investor types, in terms of characteristics like organization type, headquarters location, and investor size. Learn more about this pivotal market research here: 2020 Annual Impact Investor Survey.

Reasons To Invest In Private Equity

A Veteran’s Perspective: An inside look into the world of private market investing

Why should you consider investing in private equity? Lets point out some noteworthy factors.

  • Returns in private equity depend on absolutely different factors than in public equity markets, which makes private equity investments a great diversification instrument,
  • Instead of focusing on quarterly earnings as we usually do in public markets, private equity ownership provides the possibility to focus on long-term performance results. Eventually, it may help to generate larger returns.

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What To Watch Out For After You Invest In Private Companies

Investing in private companies is a long-term endeavor. Most people who buy shares in private businesses do so with the hope that the company will eventually go public. If a business goes through an IPO, you can easily sell your shares on the stock market. Ideally, going public means that the business is doing well and that its stock price will be higher than it was when you bought shares.

Dont forget that selling your shares will result in a capital gain or loss, which could mean paying taxes.

While you wait for the company to go public, keep an eye on its performance, but try not to stress yourself out by tracking the company on a daily basis.

What Public Companies Can Do

As private equity has gone from strength to strength, public companies have shifted their attention away from value-creation acquisitions of the sort private equity makes. They have concentrated instead on synergistic acquisitions. Conglomerates that buy unrelated businesses with potential for significant performance improvement, as ITT and Hanson did, have fallen out of fashion. As a result, private equity firms have faced few rivals for acquisitions in their sweet spot. Given the success of private equity, it is time for public companies to consider whether they might compete more directly in this space.

Conglomerates that acquire unrelated businesses with potential for significant improvement have fallen out of fashion. As a result, private equity firms have faced few rivals in their sweet spot.

We see two options. The first is to adopt the buy-to-sell model. The second is to take a more flexible approach to the ownership of businesses, in which a willingness to hold on to an acquisition for the long term is balanced by a commitment to sell as soon as corporate management feels that it can no longer add further value.

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What Is Private Equity

Private equity is a form of investment that takes place outside the public stock market through which investors gain an ownership stake in private companies. Known as an alternative asset, private equity lets accredited investors and institutional investment firms diversify their portfolios and take on more risk in exchange for the potential to earn higher returns than they might by investing in public companies.

At a basic level, private equity involves three parties:

  • The investors who supply the capital.

  • The private equity firm that manages and invests that money via a private equity fund.

  • The companies the private equity firm invests in.

  • Are Private Reits Right For You

    How to build a mid

    Heres my two cents on private REITs: In most cases, I feel that the drawbacks of private REIT investing outweigh the potential benefits. Ive evaluated many private REITs, and Id estimate that at least 90% of them charge what I consider unreasonable commissions and fees. And its tough to find an investment strategy or potential return that justifies the lack of transparency and liquidity.

    That said, its important to acknowledge that not all private REITs are inferior investments to their public counterparts. If you dont mind the lack of liquidity and find a private REIT opportunity that looks interesting, its important to thoroughly read the investments prospectus to find out exactly how much of your money will go towards fees and commissions, the background of the REITs management team, and other key factors.

    In short, when it comes to private REIT investing, the SEC and other regulatory agencies arent going to protect you, so youll need to protect yourself. If you have the time, knowledge, and desire to thoroughly evaluate private REIT investment opportunities on your own, its entirely possible to find a diamond in the rough. If not, youre probably better off sticking with publicly-traded REITs, which have high dividends and growth potential without the additional headaches.

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