As an adviser who has high net worth or sophisticated clients, you will be aware of the importance of actively managing an investment portfolio and avoiding over exposure to any asset-class. It is essential to achieve diversity, a balance of risk and return, and of course, to control costs.
An alternative for your clients’ portfolio
Private company investing adds a different source of wealth creation to your clients’ portfolio. Returns on private company investment are not closely correlated to traditional asset-classes, such as listed shares, gilts and corporate bonds.
Studies also suggest that the long-term returns of private equity exceed those for public equities and the very wealthy individuals and families (more than £10m of investable assets) now allocate on average 29% of their portfolio to private companies.
Management equity and passion
Private companies are typically managed by people with a big stake in their success. Where the average listed company chief executive owns less than 3% of the business he or she runs, private company CEOs are more likely to own around 10-20%.
But the motivation is not just financial. Private company managers are fulfilling their dreams. With their dedication and drive, supported by funding and professional guidance, these companies can transform and bring great value to investors.
The rise of crowdfunding
Recent years have seen the proliferation of crowdfunding and peer to peer lending platforms which offer investors the chance to access a number of seemingly exciting new business ventures. Generally, these companies are pre-profit and are seeking relatively small investment amounts. They are sold as a chance to make a ground-up investment, which will take the company to the next stage and hopefully onto profitability.
However, according to data from Harvard Business School, as many as 75% of start-ups fail, and with crowdfunding platforms heavily reliant on such businesses, the risks are clear. Granted, the returns on offer can be high, and the key to success in this model of investment is to utilise small amounts across a large number of companies.
Barriers to entry
Anyone looking to access this asset class outside of crowdfunding can find themselves facing difficulties. The time and expertise required to assess the viability of a business creates a barrier to entry for most institutional investors, whilst also increasing potential risk for their clients.
Historically, this has seen many turn to private equity funds. The problem is that funds offer little visibility on where and when money is invested and a lack of information on performance.
There is another way
Advisers with sophisticated and high net worth investors are increasingly choosing to partner with professional private company investors such as Rockpool to give them direct access to opportunities beyond the start-up phase.
A different approach from ROCKPOOL
Our team of investment experts spend thousands of hours digging deep into the businesses and the background of the management team, as well as commissioning expert due diligence.
The detailed information on the business, market, management team, financial forecasts and investment returns are collated into an investment memorandum for review.